Report No. 925a-EC

Ecuador: Appraisal of a FIE OpyFourth Highway ProjectMarch 15, 1976

Latin America and Caribbean Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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Currency Equivalents

Currency Unit = Sucre (S/)US$1 = Sucre/ 25.00

Fiscal Year

January 1 - December 31

System of Weights and Measures: Met,ric

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 mile (mi)1 square kilometer (kin2) = 0.386 square mile (sq mi)1 metric ton (m ton) = 0.98 long ton (lg ton)

= 1.1 US short ton (sh ton)

Abbreviations and Acronyms

AADT - Annual Average Daily TrafficCEDEGE - River Guayas Basin Development CommissionER - Economic ReturnFONADE - Fondo Nacional de DesarrolloFONAPRE - Fondo Nacional de PreinversionesFYB - First Year BenefitJUNTAPLAN - National Planning BoardMOP - Ministry of Public Works and Communications

FOR OFFICIAL USE ONLY

ECUADOR

APPRAISAL OF A FOURTH HIGHWAY PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ....... ................. i-ii

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

2. THE TRANSPORT SECTOR ............................ *... 2

A. General ............ ....... ............. 2B. The Transport Modes ............ ...... .. . 2C. Action Required for Sectoral Infrastructure 3D. Transport Policy, Planning and Coordination ...... 4E. Ir.vestments and Finance .. ................... . 6

3. THE HIGHWAY SUBSECTOR .. 7

A. The Highway Network . 7B. Characteristics and Growth of Road Traffic.. 8C. Highway Planning and Financing 9D. Highway Administration . .......................... 11E. Highway Engineering and Project Preparation .. .... 11F. Highway Construction ................... . ............... 11G. Highway Maintenance ...... ........................... 12H. Feeder Roads ................ ....... 14

4. THE PROJECT ..................... 14

A. General Description ................... .. 14B. Improvpment of the Babahoyo-Balzapamba Road ...... 15C. Maintenance Program .................. .1. ......... 15D. Programs to Improve MOP's Planning and Engineering

Capabilities and to Improve the Capability ofthe Local Civil Works Construction Industry .... 17

E. Technical Assistance in Establishing a TransportPlanning and Coordinating Agency ............... 17

F. Integrated Rural Development Study .........O...... 18G. Technical Assistance for Project Coordination .... 18H. Cost Estimates, Financing and Disbursements ...... 18I. Execution and Procurement * 20

This Appraisal Report has been prepared by Messrs. Varallyay (Engineer) andVeniard (Economist) and has been edited by Miss V. Foster.

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

TABLE OF CONTENTS - Continued

Page No.

5. ECONOMIC EVALUATION ................... 21

A. General ....... *.....******.***.*******ee* *..... 21B. Improvement of the Babahoyo-Balzapamba Road 21C. Other Project Elements ........................... 25

6. AGREEMENTS REACHED AND RECOMMENDATION ................. 25

TABLES

1. Estimates of Transport Sector Expenditures2. Highway Network3. Vehicle Fleet by Categories4. Highway Expenditures and Road Users' Contributions5. Design Standards6. Disbursement Schedule7. Babahoyo-Balzapamba Highway Traffic Flows8. Summary of Vehicle Operating Costs9. Economic Evaluation Results

ANNEXES

1. Technical Assistance to Improve MOP's Capability forHighway Planning and Preinvestment Studies

2. Technical Assistance for Highway Maintenance3. Technical Assistance for Highway Engineering4. Assistance to Domestic Road Construction Industry5. Factors for Post Completion Monitoring of Domestic

Construction Industry6. Terms of Reference for Transport Planning and Coordination7. Integrated Rural Development in the Area of Influence of

the Puerto Ila-Garrapata Road8. Technical Assistance for Overall Project Supervision and

Coordination9. Project Implementation schedule10. Project Indicators

MAP

IBRD l1882Rl - Fourth Highway Project - Ecuador Transport Network

ECUADOR

APPRAISAL OF A FOURTH HIGHWAY PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a project for: (a) improving an existingroad of the national highway network of Ecuador between Babahoyo and Balza-pamba; (b) instituting a pilot maintenance program in one of the four mainte-nance districts of the Ministry of Public Works and Communications (MOP);(c) improving planning at both sectoral and highway levels; (d) improving thecapabilities of the local civil works industry; (e) providing technicalassistance for an integrated rural development study in the area of influ-ence of the Puerto Ila-Garrapata road; and (f) providing technical assis-tance for overall project supervision and coordination.

ii. Ecuador has benefited considerably from the discovery and develop-ment of petroleum in the Amazon, necessitating a close scrutiny of all aspectsof the economy, including infrastructure elements such as transportation, toensure that each will be capable of playing its part in the general upsurgeof economic activity. As a result of this need, the Bank sent a mission, in1974, to examine the transport sector in depth. The mission concluded that:(a) the transport system is generally adequate for the current demand, butthat expansion and improvement will be required to meet future needs; and(b) there are serious institutional deficiencies related to the sector,mainly in the areas of sectoral planning and coordination among plans for theindividual modes. The proposed highway project emerges logically from thefindings of the mission since it would, inter alia, improve the serviceprovided by a segment of the national highway netwuork and would help planningboth at sectoral and highway levels.

iii. Present deficiencies in planning in Ecuador are so serious that theGovernment should, as a matter of urgency, set up an adequately staffed cen-tralized unit which would be charged with: (a) ensuring the collection andanalysis of statistics relative to all transport modes and (b) planning forthe transport sector as a whole and coordinating such planning among the indi-vidual modes. Technical assistance to help the Government in setting up sucha unit is included in the proposed project.

iv. Project execution would be the responsibility of MOP, but thie ruraldevelopment study would be carried out in coordination with the 'linistrv ofAgriculture and the Fondo Nacional de Preinversiones (FO-APRE). Civil worksfor road construction and improvement would be carried out on the basis ofunit price contracts awarded after international competitive bidding inaccordance with the Bank's Guidelines. The works would be divided into lotsfor bidding purposes, and prequalified firms would be allowed to bid for anylot or combination of lots.

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v. The civil works element of the proposed project, i.e., the workson the Babahoyo-Balzapamba road, including supervision, represent about 62%of the estimated project cost and have an economic return of about 14%.Quantifiable benefits would derive from savings in vehicle operating, mainte-nance and time costs.

vi. The total project cost is estimaited at US$21 million equivalent witha foreign exchange component of US$10.5 mi:Llion equivalent. This foreign ex-change component represents about 50% of total project costs and assumes thatimprovement of the Babahoyo-Balzapamba roacd would be executed by local con-tractors and that technical assistance wou:Ld be provided by foreign con-sultants.

vii. It is proposed that the entire foreign exchange cost of the projectbe covered by a Bank loan of US$10.5 million equivalent; local costs would befinanced by the Government. An appropriate term would be 25 years, includinga five-year grace period.

ECUADOR

APPRAISAL OF A FOURTH HIGHWAY PROJECT

1. INTRODUCTION

1.01 The Bank Group involvement in highways in Ecuador dates from 1954.In that year, a loan (94-EC) was made to help finance a project which comprisedimprovement of trunk roads in Guayas, the important province in which Guayaquil,the country's largest city, is located. A further loan (176-EC) was made in1957, and then, in 1964, a third project was financed by the Bank (Loan 379-EC),the Association (Credit 51-EC), IDB and USAID in consortium, which helped tofinance improvement of trunk roads, acquisition of maintenance equipment andconsulting services.

1.02 The economy of Ecuador has benefited in recent years from thediscovery and development of petroleum in the Amazon region. This, in turn,necessitated a close scrutiny of all aspects of the economy, including infra-structure elements such as transportation, to ensure that each should becapable of playing its part in the general upsurge of economic activity.Although the Bank Group has maintained contact with the transport sectorthrough the Consortium Highway Project, the Bank, in 1974, considered thata thorough analysis was warranted, particularly since it had been 10 yearssince the sector had been reviewed comprehensively. Thus, in September 1974,at the invitation of the Government, the Bank sent a mission comprisingspecialists in all relevant modes to examine the transport sector in depth.

1.03 The report of that transport sector survey mission, completed inmid-1975, concluded essentially: (a) that the transport system was generallyadequate for the current demand, but that expansion and improvement of thesystem would be required to meet future needs; and (b) that there are seriousinstitutional deficiencies related to the sector, mainly in the area ofsectoral planning and coordination among the individual modes.

1.04 This proposed highway project emerges logically from the findingsof the 1974 sector mission since it would help rectify some of the short-comings, both in physical and institutional terms, identified by the sectormission. Physically, it would improve the service provided by two sectionsof the national highway network, including the approach to Guayaquil; insti-tutionally, it would help planning at both sectoral and highway levels andwould also examine the problems of the local civil works construction in-dustry. In addition, it would address the problems of highway maintenance,through a two-year program, and of feeder road development. The project isestimated to cost about US$21 million equivalent, and the proposed loan wouldfinance the foreign exchange component amounting to US$10.5 million.

1.05 The project was appraised by Messrs. Varallyay (Engineer) and Veniard(Economist) in March 1975. The report has been edited by Miss V. Foster.

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2. THE TRANSPORT SECTOR

A. General

22.01 Ecuador has an area of 271,000 km . Its geographical configurationhas been a determining factor in the location of its population and economicactivities, as well as in the development of iLts transport network. Twoprincipal mountain chains, the western and eastern ranges of the Andes, runfrom north to south and divide the country into three natural and distinctregions: the coastal region (Costa), the mountain region (Sierra) and theAmazon region (Oriente). Transport among theese three regions is difficult,particularly access to the Oriente.

2.02 The principal land transport flows are to be found (a) in the twocorridors which extend from the Colombian border in the north to the Peruvianborder in the south - one following the Central Valley of the Andean chainsand servicing the capital, Quito, and the other following the Costa, fromEsneraldas, the chief port in the north, through Guayaquil, the country'smajor port, to Puerto Bolivar in the south; (b) in the most importantcorridor of the country, between Quito and Guayaquil; (c) between theOriente region and Esmeraldas - mainly crude oil transported by pipeline;and (d) in the environs of the major urban areas.

B. The Transport Modes

2.03 Five modes of transport are important in Ecuador; they are - indecreasing order of importance - highways, shipping, pipelines, aviation andrailways. Highways and their administration are discussed in Chapter 3, andthe other modes may be summarized as follows.

(i) Shipping

2.04 Foreign and coastal shipping is handled through eight maritime portswith widely varying natural, technical and operational characteristics -GuayaquiL, Puerto Bolivar, Manta, Esmeraldas, San Lorenzo, Bahia de Caraques,and the petroleum terminals of La Libertad in S;alinas and Balao in Esmeraldas.The Bank is currently considering a project for expansion of the Port ofGuayaquil.

(ii) Pipelines

2.05 A pipeline for refined petroleum products extends from Duran, closeto Guayaquil, to Quito (358 km), and a crude oil pipeline extends from LagoAgrio, in the Oriente, to the Port of Balao, in Esmeraldas (503 km). Smallerfeeder lines connect these pipelines to the oilfields, such as the Lago Agrioto Shushufindi (16 km) and to Sacha (52 km),

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(ili) Aviation

2.06 Thirteen airports are served by scheduled services; two of theseairports - Quito and Guayaquil - are also served by International carriers.

(iv) Railways

2.07 The rail network has a total length of 971 kb. The main line isbetween Quito and Guayaquil, and there are branch lines south to Cuenca andnorthwest to the port of San Lorenzo,

C. Action Required for Sectoral Infrastructure

2.08 The present transport system of Ecuador is generally adequate, inthe inhabited areas of the Costa and Sierra, to the extent that it permitsthe movement of passengers and freight within those areas. However, in manycases, this transport is costly and the level of service is low, resultingin systems which would be inadequate to meet the demands of increased regionaltrade, the transport of export crops and the handling of the growing volumesof imports. Furthermore, as the need to open new lands for productive usebecomes more pressing, the provision of adequate transport facilities tothose areas becomes an important objective. The Bank's Transport SectorSurvey Mission, after reviewing future traffic levels, including demandsthat may be generated by investments in regional development and in specificsectoral projects (notably, agricultural, rural development, and irrigationand colonization projects), concluded that the Government's objectives inthe next few years should include at least:

(a) Expansion of the main road network, including further integrationof the Oriente, improvement of the major north-south corridors(Pan-American Highway), etc.;

(b) Improvement of road access to major cities, especially Quitoand Guayaquil;

(c) Improvement of the capacity of seaports and rationalizationof the interface between maritime and land transport;

(d) Expansion of secondary and feeder road systems, complementinghigh priority regional and rural development programs;

(e) Definition of the future role of state-owned railway lines;

(f) Expansion and improvement of air transport services in general,and specifically for passengers, on both domestic and internationalroutes;

(g) Improvement in maritime shipping and greater use of inlandwaterways, especially in the Oriente; and

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(h) Expansion of the pipeline system for crude and refinedpetroleum products.

The proposed project includes elements designed to help action in (a) preceding.

D. Transport Policy, Planning and Coordination

2.09 Five ministries and the National Planning Board (JUNTAPLAN) cur-rently share authority in matters of transport policy in the country, withthe additional intervention of provincial governments at the local level.Although JUNTAPLAN attempted the fornulation of national policies (for itsNational Development Plan of 1973-1977), the effective policy-making hasremained for the most part a prerogative of the - often competing - agenciesindicated, which carried out their policies separately with little or nocontrol and coordination by JUNTAPLAN.

2.10 With regard to planning, in 1974, the Bank carried out an in-depthsurvey of the transportation sector (para. 1.02). The report resulting fromthe study indicated, inter alia, the following deficiencies:

(a) No one Government agency is responsible for overall sectoralplanning (efforts by JUNTAPLAN to play this role have not beensuccessful beyond defining. the general objectives of the sectprand formulating a list of policies for the National EconomicPlan 1973-1977. This has been due in part to JUNTAPLAN's lackof efficient control over all the agencies dealing with thedifferent transport modes and in part to limitations of itspresent organization and staffing);

(b) Sectoral statistics are not collected, processed and retrievedcentrally, due, in part, to a lack of uniformity in the methodsof statistical work in the different modal agencies;

(c) There is no coherent pricing policy for the sector as a whole;this leads to an extemely variable performance in the individualmodes, e.g.:

(i) of all the modes, only ports and pipelinescover expenditures from revenues;

(ii) motor fuel prices have been fixed for several years,and Government is foregoing large revenues bymaintaining the price level below the current worldmarket level 1/; and

1/ The Sector Mission estimated that, by so doing, the revenue foregonein 1974, for example, was about SI 1,100 million.

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(i<8) fixed tariffs on the railways, maintained in the face ofincreasing operating costs, are aggravating the alreadychronic railway deficit.

(d) Preparation of transportation projects at the planning stage andat the level of pre-investment studies is slow, and quality ofthe results is generally not good enough to meet the standardsnecessary to attract external financing (a current example ofinadequate project preparation is the simultaneous preparationof a Quito-Guayaquil expressway project and a study of the futureof the railway without coordination between the two efforts,although they both relate to the same transport corridor 1/);

(e) The essential issues of intermodal planning for meeting the long-term demand projections of transport are not being adequatelyaddressed. As a result, either directly or indirectly, importantissues remain unresolved, including: (i) integration of theOriente with the Sierra; (ii) establishment of priorities formain trunk roads and for upgrading secondary and feeder roads;(iii) formulation of development strategy for seaports in harmonywith other modes of transport, such as highways and railways;(iv) definition of the appropriate future role of the railwaysystem; and (v) definition of the appropriate role of civilaviation and, specifically, of the infrastructure and fleet re-quirements.

2.11 The deficiencies are serious, and the absence of action to correctthem is potentially damaging to the economy. The Government should, as amatter of urgency, set up and adequately staff some centralized unit whichwould carry out sectoral planning and coordination in order to eliminate thedeficiencies through action in, but not limited to, the following areas:

(a) ensuring the collection, on a comparable basis, of statisticsrelative to all transport modes and the analysis of suchstatistics in a manner appropriate to the needs of thesectoral and modal planners;

(b) critically reviewing the scope and desirable extent of revisionof existing modal regulations, including, particularly, roadtransport regulations (para. 3.08);

(c) making uniform the budgeting procedures and financial reportingstandards for all modal agencies (para. 2.14);

(d) reviewing pricing in each mode of transport, establishinga sectoral policy, and examining, in such a broad context,the fuel price levels (para. 3.13); and

1/ The 1974 Bank Transport Sector Survey was instrumental in bringingthis need for an integrated (road and rail) approach to the Government'sattention.

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(e) planning for the sector as a whole to determine and implementadequately justified investment priorities, as well as tocreate a sound basis for intermodal coordination.

2.12 A two-stage approach has been adopted to ensure that sectoral plan-ning and coordination be Implemented effectively, for the following reasons:(a) it offers a practicable institutional framework; (b) it is politicallymore acceptable to the Government in view of the existing fragmentation withinthe sector; and (c) it minimizes complications that may arise from deficientexecutive capacity of existing institutions. Therefore, an assurance wasobtained during negotiations for the proposed loan regarding the timetableof the two stages which would, in fact, gradudally build up the sectoral plan-ning and coordinating effort, first covering Land transport and thereafterextended to all modes of transport. More specifically, the following twomajor events were agreed during negotiations, including the terms of referencefor each:

(a) establishment, not later than one year after the date of the loanagreement, of an appropriate and adequately staffed unit withinMOP by decree for planning and coordinating all land transport,including administration and regulation of road transport; and

fb) establishment, not later than two years after the date of theloan agreement, of an appropriate and adequately staffed unitfor planning and coordinating all modes of transport withsuch organization and functions as shall be required forthe purpose.

Technical assistance to help the Government in setting up the above units andin carrying out their terms of reference during the first three years afterloan agreement is included in the proposed project (para. 4.10).

2.13 Regarding the goal of permitting investment only in sound and provenprojects, the Government advised the Bank of the establishment, in 1975, ofthe Sistema Nacional de Proyectos, an organization entrusted to JUNTAPLAN for,inter alia, proposing investment programs and projects in transportation,participating in interministerial working grouaps on project identification,preparation, appraisal, promotion and ImpleenLtation, and for cooperatingwith JUNTAPLAN and sectoral planning units on overall coordination of publicinvestment programs. Furthermore, ithe Government gave assurances to the Bankduring negotiations that the functions of the Sistema, with regard to landtransport, would be the responsibility of the agency to be established withinMOP as under (a) above.

E. Investments and Finance

2.14 Government investment in transport infrastructure is made throughthe various modal agencies, but, bec:ause of the lack of uniform proceduresin budgetary and financial statements and in the preparation of balance sheetsof the modal agencies and semiautonomous corporations, it is extremely diffi-cult to establish an accurate picture of total investment in the sector. An

attempt has been made, however, to reconstruct total sectoral expenditures,including investments, in Table 1. Technical assistance for transport plan-ning and coordination (para. 4.10) would address the problem of uniformbudgetary procedures and financial statements.

2.15 Government investments have been stimulated in the past by therapidly increasing revenues from petroleum exports. The Fondo Nacional deDesarrollo (PONADE) received a substantial portion of revenues from oil exportsfor financing high priority development projects, whereas the Fondo Nacional dePreinversiones (FONAPRE), set up in 1973, received foreign exchange from thesame source for financing preparation of such projects. However, the recentslowing down of petroleum exports has reduced these funds considerably.Expected increases in export earnings may not be sufficient to financeFONADE's share of planned public sector investments without resorting toforeign financing.

3. THE HIGHWAY SUBSECTOR

A. The Highway Network

3.01 As may be expected in a country with terrain as varied as that inEcuador, highway development has been greatly influenced by geographical andclimatic conditions; these differ widely among the three major regions of thecountry: the Costa, the Sierra and the Oriente. The highway network expandedconsiderably during, and since, the 1960's, increasing by 50Z between 1963 and1973 to reach a total of 22,500 km (Table 2). The increase in paved roadsduring the last three years reflects the continued improvement of the mainroad network.

3.02 In spite of continued expansion and improvement, the general condi-tion of the main road network is not adequate to assure a satisfactory levelof service even for existing traffic volumes, The Ministry of Public Worksand Communications (MOP) is currently working on close to 2,200 km of roads,including trunk road improvement and secondary and feeder road construction.A highway project, being financed by IDB, is under way, which will add 333 kmto the paved network, principally in the Oriente and in the Guayas and El Oroprovinces. All seven roads included in this project are under construction,and five are expected to be completed by 1976.

3.03 The Bank Group has participated in development of the highway networkthrough three projects (para. 1.01). The first, in 1954 (US$8.5 million,Loan 94-EC), comprised construction and improvement of about 586 km of trunkroads in the province of Guayas; the second, in 1957 (US$14.5 million, Loan176-EC), comprised construction and improvement of a further 533 km of trunkroads; and the third, in 1964, was a consortium project with finance fromthe Bank (US$9 million, Loan 379-EC), the Association (US$8 million, Credit51-EC), IDB and USAID. The project financed road construction, a five-yearmaintenance program and consultant services for supervision of construction

and preparation of future projects. The complexity of a four-agency partici-pation inevitably led to some initial delays, but progress eventually improvedand the project was generally satisfactory; it: was closed in December 1974 witha small balance of the credit being cancelled.,

B. Characteristics and Growth of Road Traffic

3.04 Most goods (approximately 80% of all freight) and passengers aremoved by road. A national transport survey inT 1964 and a highway master planprepared in 1973 (under the consortium project, para. 3.03) provided usefulinformation on road traffic, but otherwise inf'ormation is scant and unrelia-ble. The highway master plan study revealed that traffic volumes exceeded2,500 vehicles per day (Annual Average Daily Traffic - AADT) only on theaccess roads to Quito and Guayaquil and that, otherwise, even on the majorroads, traffic rarely exceeded 500 AADT.

3.05 Vehicle registration, by categories, since 1951, is indicated inTable 3. The fleet more than doubled in the period 1966-1973, reachingclose to 90,000 vehicles in the latter year. The importance of the two majorurban centers in the country, Quito and Guayaquil, is shown by the fact thatabout 62% of the total vehicle fleet is registered in the provinces of whichthey are the principal cities (Pichincha and Guayas). At the same time, theOriente region registered only about 1% of all vehicles in the country.This unbalanced growth pattern in the highway subsector, however, is indica-tive of most other sectors in the economy, and demgraphic data show thesame imbalance.

3.06 Overloading of commercial vehicles appears to continue, althoughsome efforts have been made by MOP to improve this situation. Weighbridgeswere installed at four sites along major trunk roads of the network after1964 under the consortium highway project, the last one becoming operationalin 1973. It is doubtful, however, whether adequately trained personnel areavailable at the stations; also, collection of data and sampling techniquesare deficient. To protect the considerable investment in highways, the Bankshould again encourage action on the part of the Government to enforce legalaxle loadings. This would require appropriate staffing of the four weigh-bridges and training of this staff in techniques such as vehicle samplingand vehicle weighing. An assurance was obtained during negotiations thatthe Government would take all the necessary action to keep the dimensions,axle-loading and weight limits of the vehicles in operation within the limitsprovided by law and to ensure permanent enforcement of the Ley de Caminos.The technical assistance included irn this proposed project (para. 4.06)would assist the Government in carrying out this law, and, specifically,in training the required staff.

3.07 Import duties on vehicles and spare lparts have been high and, until1974, revenues from such duties constituted a substantial part of road usercharges; in 1973, for example, they made up 38% of the total, while fuel taxescontributed 52%. Under these conditions, only one-half of the revenues de-pends upon the vehicle fleet's use of the network. The high import dutiestended to restrict new vehicle entries, and those levied on commercial

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vehicles caused financial problems for truckers; the net result is a vehiclefleet characterized by too wuch old and inefficient equipment.

3.08 Road transport is regulated and administered by a variety of Govern-ment agencies, including MOP, the Ministry of Labor and Social Welfare, andthe Interior Ministry, the latter supervising the National TransportationCouncil which, in turn, is responsible for road transport regulation. Fortrucking, existing regulations are too detailed, so much so that, if rigidlyenforced, they would be an impediment to the development of a healthy industry.However, since the Government has never acted with full force to implement

existing laws, trucking, in effect, is largely unregulated and there is strongcompetition for traffic; this has resulted in the existence of many unregisteredtruckers (independent owner/operators). In contrast to trucking, passengertraffic is more effectively regulated; intercity passenger tariffs are con-trolled, as are entry permits, routings, and frequency of service. Thetechnical assistance to be provided for setting up a sectoral planning agency(para. 4.10) should also critically review, and make recommendations on, thescope and desirable extent of revision of the existing vehicle regulations. Auseful input to this critical review would be the report of the 1974 Bankmission (para. 1.02) which, inter alia, specifically dealt with the problemsof the trucking industry.

C. Highway Planning and Financing

3.09 Highway planning has not been, and still is not, a continuous pro-cess in Ecuador. After eonsiderable expansion of infrastructure in the 1950's,and later under the impetus of oil exploration that began in 1967, the pressuremounted on MOP to define action In the highway subsector for supplementingoverall development strategies. Convinced of the inportance of a comprehen-sive plan, MOP contracted a highvay master plan to consultants (TAMS/USA) in1973; the foreign exchange costs of the work were financed under the con-sortium highway project (para. 3.03). This master plan was completed bymid-1974. It served as a basis, in its early stage, for selection of someeight road projects for detailed feasibility study; one of the most viableroads is included in the proposed project. The next viable project, a roadbetween °uerto Ila and Garrapata, may constitute the first stage of a futureintegrated rural development project, a study of which is also included in theproposed project (para. 4.11).

3.10 Planning and programning for highways is the responsibility of theDepartment of Programming in the Directorate General of Public Works underMOP, but the Department operates without experienced personnel. A review ofthe work of this Department indicated the following major deficiencies:

(a) traffic data adequate for planning, prograiming, and designare not collected periodically;

(b) efforts have not been made to prepare the staff for periodicupdating of the highway master plan (para. 3.09);

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(c) coordination with other Government agencies concerned withroad transport (para, 3.08) is weak, and Information requiredfor planning is not made available to MOP; and

(d) the Department does not have the capability to carry out, orto contract and supervise, preinvestment studies; even withforeign consultants, there have been delays in the studiesconfirming the feasibility of compoinents of the proposedproject.

3.11 Therefore, it is necessary to strengthen highway planning andprogramming. An ongoing reorganization within MOP (para. 3.14) envisagesestablishment of a Directorate of Planning and Programming under the newSub-Secretariat of Public Works, which is scheduled to plan and program forhighways after January 1976. It would be desLrable for MOP to adopt thefollowing objectives with regard to highway planning:

(a) periodic collection of traffic data,, including origin anddestination surveys; and

(b) building up a staff suitable for monitoring and for carryingout preinvestment studies, highway planning and programmingin general.

In view of the above, the Rank, in addition to seeking assurances on sectoralplanning (para. 2.11), also obtained an assurance during negotiations thatthe Government would, in fact, maintain an appropriate entity for highwayplanning within the reorganized MOP. To help the Government to achieve theabove objectives, a program of technical assistance to strengthen highwayplanning has been included in the proposed project (para. 4.06); terms ofreference for this assistance were agreed during negotiations on the basisof an outline in Annex 1.

3.12 Highway expenditures are financed tlhrough MOP; Table 4 gives thedetails for the period 1970-1973. While expenditures for construction,maintenance, and improvements increased roughly four-fold between 1970 and1973, investments in highway studies increasedL by only a little more thantwo-fold. This demonstrates the pressure placed on MOP to spend constructionfunds, at a time when funds available for project preparation were not suffi-cient to keep up with the desired pace of construction. This disparitybetween funds for investment and funds for preparation reinforces the casefor insistence on planning (para. 3.11).

3.13 Highway investments are financed from a multitude of Governmentfunds, including the Fondo Vial (using earmarked road user charges), FONADE,FONAPRE, and the general budget. Estimated contributions from road users areshown in Table 4. Reliable figures for contributions are not available before1972. The fuel pricing structure becomes important since motor fuel pricesare low in comparison with internat:Lonal prices, and this may bring about(a) a misallocation of resources, d:Lstortion of inter-modal use, and distorted

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investment decisions; and (b) a transport demand far greater than it otherwisewould be. A quick and easy solution to the problm of uneconomically low fuelprices is not possible - any solution would need to be carefully consideredby the Government since it would radically touch the lives of practically allthe population; equally important is the fact that, at this time, there is nosoundly based information on which to make rational recommendations. The

technical assistance included in the proposed project (para. 4.10) shouldexamine the question of fuel prices within the broader context of sectoralplanning.

D. Highway Administration

3.14 MOP administers highways in addition to communications, postalservices, and railways; highway matters, including maintenance, are dealtwith through the Directorate General of Public Works. The existing organi-zation of MOP is not suitable for the efficient management of highways andrailways; the Government, in recognition of this fact, contracted a studyfor the reorganization of MOP in early 1974, and, after the diagnostic anddesign phase of the study, is now implementing a reorganization scheduled tobe completed in 1976. The revised structure should materially improve MOP'scapabilities in highway administration, including planning, progrAMming,project implementation, and maintenance.

E. Highway Engineering and Project Preparation

3.15 The standards for existing highways vary considerably in Ecuador,according to regional conditions. A complete set of design standards wasproposed in 1964, but MOP has not adopted them slavishly and selects standardsaccording to local conditions and available funds, not only when preparedwithin the Design Department of MOP, but also when contracted to consultants,and MOP's role is limited to supervision. Upon MOP's request, consultants(TAMS/USA) financed under the highway consortium project (para. 3.03),developed highway manuals (specifications and standard conditions of contract).The documents were approved by MOP in 1974.

3.16 Detailed engineering of highway projects, following preinvestmentevaluation, still requires improvement. Preparation of the proposed projectis an example; even with foreign coordinating consultants, there have beenunusual delays in engineering. The proposed project includes, therefore, aprogram to improve MOP's capability in highway engineering (para. 4.06).

F. Highway Construction

3.17 For the past 10 years, a large part of the highway constructioneffort in Ecuador, including that financed externally, has been awarded to

local contractors; their performance, however, under the highway consortiumproject, for example, reveals that their technical expertise should be improved.At the time of the Bank transport sector mission (September 1974), the capacityof the domestic road construction industry was estimated by identifying itsworkload at that time in terms of construction contracts, which covered some

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2,200 km of road and 2 km of bridges, the average construction period of thecontracts being about three years.

3.18 The 1974 transport sector mission identified a number of problemsfacing the industry - generated in part from the industry itself and in partfrom the Government's treatment of the industry. The mission specificallynoted:

(a) a deficiency in the firms' technical and managerialexpertise;

(b) MOP's fluctuating load on the industry, adversely affectingthe industry's investment decisions;

(c) MOP's tardiness in meeting contractors' interim payments; and

(d) the absence of a price variation formula in Government contracts.

A thorough review of the industry and of Government policy and practicesvis-a-vis the industry is needed, the more so since, with little interest byforeign contractors, the local industry carries virtually all the constructionload. A program to diagnose and help correct the present shortcomings in theindustry is included in the proposed project (para. 4.07).

c. Highway Maintenance

3.19 Highway maintenance is performed through four regional divisionsof the Maintenance Department under the Directorate General of Public Works.This structure was created in 1970 upon completion of a maintenance programwhich was financed under the highway consortium project in 1964 (para. 3.03).The ongoing reorganization In MOP (para. 3.14) will not change this structure.Periodic saintenance and emergency works are performed through the four mainte-nance districts on force account, as well as by contract. Routine maintenanceof both paved and unpaved roads is carried out exclusively on force account.These arrangements are satisfactory and are not expected to change.

3.20 The five-year mainteance prograu for 5,000 km of surfaced roads 1/began in 1964 with an estimated cost of US$20 aillton equivalent, of whichUS$5.5 million were financed by USAID (US$3.3 million) and IERD (US$2.2million), and the remainlng balance in local cost by the Government, compris-ing the annual maintenance budget of MOP. The foreign exchange component ofthe program (US$5.5 million) financed construction of buildings, constructionand equipment of shops, procurement of maintenance equipment, and a very smallelement (US$0.2 million) of technical assistance; the local funds mentionedabove financed the recurring maintenance operation. A review of the outcomeof the five-year maintenance program indicates that:

1/ Representing about one-third of the networ'k at the time.

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(a) MOP's total maintenance budget was required to provide localcounterpart funds for the five-year maintenance programcovering only the 5,000 km of surfaced roads. This reducedmaintenance efforts over the entire highway network, andwas, in part, responsible for the fact that targeted averagemaintenance costs (US$1,000 per km per year) were not achievedat the end of the program in 1970; such eosts muounted onlyto US$436 per km per year in 1972,

(b) The consultants' completion report in 1970 recommended(i) further reorganization of the maintenance department;(ii) reallocation of equipment; (iii) improvement ofplanning, budgeting and controlling procedures for mainte-nance; (iv) procurement of equipment in the amount of US$,8million; and (v) increasing the maintenance budget.

3.21 Four years after the end of the five-year maintenance program, theBank sector mission (1974), and the appraisal mission for the proposed project(early 1975) confirmed the following:

(a) The maintenance budget was raised substantially after1971 to reach a satisfactory level in 1973, but it wasreduced by 10% in 1974; furthermore, during the firstsix months of 1974, less than 35% of the total budgetedwas used up by MOP;

(b) The condition of several major paved trunk roads, as wellas Important secondary gravel roads, showed a lack ofadequate maintenance;

(c) While total maintenance personnel constituted about 60% ofthe total MOP personnel, only 25Z of MOP engineers wereassigned to maintenance (of which one-fourth were retainedin Quito's headquarters); and

(d) Records for 1973 - the year of the highest maintenancebudget - showed that the incidence of patching of pavedroads was at about one-third of the level normally required.Records for the same year for gravel roads showed thatreplenishment was done, on the average, once in 15 years,instead of once after each rainy season.

3.22 In view of the above, the following major deficiencies are identified:

(a) Inefficient use of the budget (e.g., the 1973 budget was at anacceptable level, but road conditions did not adequately reflectthis in 1974);

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(b) Lack of adequate knowledge of maintenance work on the part ofMOP technical personnel (from planning, programming andbudgeting through execution); and

(c) Shortage of technical personnel, especially at the engineerlevel, and a lack of programs to increase staff and/or totrain them.

Considering the above, a maintenance program has been included in the proposedproject with the purpose of helping the Government to eliminate these defi-ciencies and to identify other probLems and causes responsible for the lackof adequate overall road maintenance in the country (paras. 4.04 and 4.05).

H. Feeder Roads

3.23 Planning of feeder roads requires special treatment, particularlyin a country such as Ecuador where agriculture plays an important role, sinceit must be integrated with agricultural output and potential, and with comple-mentary aspects such as extension services, agricultural credit, and the mar-keting process. The relevance of feeder roads to agricultural development wasemphasized in the findings of a recent Bank rural development mission.

3.24 Although construction and improvement of feeder roads have beenreceiving increasing attention in recent years both from the Government andfrom external funding agencies, adequate coordination among the various agenciesinvolved has not always been achieved. Partly for the demonstration effect,and partly to ensure meaningful rural development in an area in which theGovernment is now preparing plans for a new trunk road, the proposed projectincludes an integrated rural development study (para. 4.11).

4. THE PROJECT

A. General Description

4.01 The proposed project would consist of:

(a) improvement, including supervision, of the existingroad between Babahoyo and Balzapamba (49 km);

(b) a review of the Maintenance DepartmenLt of MOP anda maintenance program in one of the four main-tenance districts of MOP, including the utilizationof equipment required;

(e) a program to improve the engineering capability ofthe Highway Department of MIOP;

(d) a program to improve MOP's capability for highwayplanning and pre-investment: studies;

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(e) technical assistance for establiaeent of a transportsector planning and coordinating agency;

(f) a program to improve the capabilities of the localroad construction industry;

(g) an integrated rural development study in the area ofinfluence of the Puerto Ila-Garrapata road; and

(h) technical assistance for overall project coordination.

B. Improvement of the Babahoyo-Balzapamba Road

4.02 The Babahoyo-Balzapamba section is part of a road connectingBabahoyc, in the Guayas basin, with Ambato, in the central valley, locatedsouth of Quito on the Pan-American highway (Map IBRD ll882Rl). The existingroad section of 49 km is gravel surfaced, with platform widths varyingbetween five and ten meters. Close to 26 km were flooded at seven locationsduring the last rainy season; another section, between Montalvo and Balzapamba,was damaged recently when the Rio Cristal changed course and isolated thetown of Montalvo. Traffic on the road, in 1974, varied between 200 and 830vehicles per day. The proposed works, raising the grade line to eliminateflooding, realignment where necessary, and a pavement - in part asphalticconcrete and in part asphaltic surface treatment (depending on the traffic) --would ensure a flood-free, all-weather road. Design standards are given inTable 5. The average cost of the improvement work is US$185,000 per km.

4.03 Feasibility of the proposed improvements was demonstrated in astudy financed under the consortium highway project and carried out byconsultants (TAMS/USA) during 1974/75. Detailed engineering was under-taken by local consultants (ASTEC/Ecuador) with coordination and super-vision by TAMS. Final design work has been completed together with biddocuments and final cost estimates.

C. Maintenance Program

4.04 The condition of the growing highway network in the country showsa lack of adequate maintenance, in spite of increasing budgetary allocationsfor maintenance over the last few years. A review, during appraisal of theproposed project, of the operation of the Maintenance Departmet under MOPalso identified other specific deficiencies (paras. 3.20-3.22). Therefore,to help the Government embark on a program to better preserve lnveestts inthe highway network, a maintenance program is included in the proposedproject. It is recognized that this program would, to some eztent, repeatthe saintenance program financed under the consortium highway project in 1964,which indicates that recurring deficiencies are largely responsible for poorperformance in this area (e.g., trained MOP personnel retire or leave theMinistry, equipment depreciates and funds for renewal are not available on time,

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etc.). During neg tiations, an agreement was reached with the Govermnatthat this program weeld be coadcted within the Maintenance Department ofMOP, concentrating on the first of four maintenance districts (overing theProvinces of Carchi, Iababura, Pichincha and Esmeraldas), and it wouldcomprise:

(a) a review and recoendations on:

(i) planning, budgeting, and controlling maintenanceworks;

(ii) the technicAl aspects of equipment operation, androutine nd periodic maintenance operations;

(iii) maintenance personnel, including an evaluation oftranin moeds;

(iv) maintenance equipment, including a condition survey andrequired purchases in order to ensure that adequateequipment is available in the district selected;

(b) on the basis of (a) above, the formulation of a two-year main-tenance program for the First Maintenance District; and

Cc) iuplementation of the two-year program formulated under (b)above through utilization of the equipment required, includinga critical review of the work methods and adainistrativeprocedures, tbus permitting the Government to formulatetested procedures in order to extend them to all fourmaintenance districts in the future.

A more detailed description of this lprogram appears in Annex 2. Financingof consultants for technical assistance to the Maintenance Department ofMOP would be provided In the proposed loan.

4.05 During negotiations, in addition to the selection of the maintenancedistrict, an agreement was reached with the Governoent on the timetable forsteps (a) through (c) above, and the timing and terms of reference for theconsulting services required. Furthermore, an assurance was obtained fromthe Government that the ank would be consulted on the specific programs tobe undertaken to satisfy training needs and on formulating the two-yearmaintenance program usder (b) above; with respect to this latter, anassurance was also obtained that the Government would provide sufficientoperational equipment in the first district for execution of the programunder (b) above.

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D. Programs to Improve MOP's Planning and Engineering Capabilities and toImprove the Capability of the Local Civil Works Construction Industry

4.06 Institutional deficiencies of MOP, specifically in the areas ofplanning and design of highways (paras. 3.10 and 3.16, respectively) andof control of vehicle weights (para. 3.06), have been noted. As part ofa broad-based effort to improve MOP capabilities in the highway subsector,the project includes programs to remedy deficiencies, both in planning(Annex 1) and in design (Annex 3). The proposed project would provide tech-nical assistance to help define and implement the programs and to help mountan effective program for enforcing legal limits on axle loadings.

4.07 Factors militating against an efficient local civil works con-struction industry have been noted in paragraph 3.18. The project includesa program directed toward making the industry more efficient and would con-front the problem from two standpoints: (a) the structure and methods of theindustry itself; and (b) the handling of the industry by Government agencies.As regards the industry, the program would operate through MOP and itsregistered contractors and would comprise, essentially, diagnosis and assist-ance in the areas of: (a) bidding, contracting, cost control, financialplanning, and management (including support services such as workshops); and(b) site operations, programming of mobilization, maintenance, purchases andstorage, and equipment managemeht. As regards the Government, assistancewould be provided to MOP in the areas of prequalification and bidding proce-dures and their evaluation, supervision, contract management, and arbitration.An assurance was obtained during negotiations that no domestic road contractorwould be permitted, as of one year after the date of the loan agreement, totake part in any bidding invited by MOP for paved road construction contractsunless such contractor would have received the above technical assistance.

4.08 For these programs, terms of reference for the technical assistance,and the institutional and operational framework within which it would operate,were agreed during negotiations on the basis of detailed proposals outlinedin Annexes 1, 3 and 4.

4.09 In order to monitor the results of technical assistance for thedomestic contractors, a number of factors specific to the assistance proposed,as well as others related to the industry in general, have been selected, asshown in Annex 5. The consultants providing technical assistance to domesticcontractors would evaluate these indicators for the past years, and, uponcompletion of the project, the Bank, through its supervisory efforts, wouldperiodically collect such information.

E. Technical Assistance in Establishing a Transport Planningand Coordinating Agency

4.10 The deficiencies in planning at the sectoral level, and the assis-tance the Government should seek in connection with setting up, in two stages,

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an appropriate sectoral planning mechanism are detailed in paragraphs 2.12and 2.13. To help in setting up the two required units, and to advise theGovernment in the initial phases of planning, technical assistance isenvisaged under the proposed project. The assistance would take the formof modal experts for the dominant transport modes and of sectoral plannersto help address specific problems in land transport and those of the entiresector as defined in their terms of reference; the terms of reference forassistance in land transport, and sectoral planning and coordination areessentially the same as shown in Annex 6. I'hese terms of reference wereagreed during negotiations.

F. Integrated Rural Development Study

4.11 The shortcomings in plannning of rural development projects,specifically in the context of feeder road development, have been notedin paragraphs 3.23 and 3.24. An opportunity now exists for the Bank tobring to bear its expertise in integrated rural development planning. TheGovernment is currently completing the design for a new trunk road (86 km)in the Quevedo area connecting Puerto Ila and Garrapata. The area ofinfluence of the proposed new highway comprises approximately 150 000 hain the Quevedo area in the northwest of Ecuador (Map IBRD 11882RK5. Theproject therefore includes a study which would properly define the projectarea, evaluate its potential, define needed complementary investments andprepare a plan, including timetable and budget. Technical assistance forthis study is provided under the proposed project (Annex 7). The scope andtiming of the study and the terms of reference for the technical assistancewere agreed during negotiations; agreement was also reached with the Govern-ment that this part of the projectl would be carried out by the Ministry ofAgriculture (MAG), MOP, JUNTAPLAN, and FONAPRE through an ad-hoc committeecomprising representatives of each. Furthermore, the specific responsibilitiesof each of the above Government agencies, including the provision of funds,was agreed during negotiations.

G. Technical Assistance for ProJect Coordination

4.12 The project comprises a wide variety of components, and, althoughwell suited to the needs of the country, may provide a strain on the admin-istrative capability of MOP for its execution, the more so since the compo-nents impinge on many fields of activities in sectors other than transport.An element of technical assistance has therefore been provided under theproposed loan to help MOP coordinate and administer the project. The ex-tent of the technical assistance and detailed terms of reference thereforwere agreed during negotiations using, as a basis, the outline in Annex 8.

H. Cost Estimates, Financing and Disbursements

h.13 The proposed project is estimated to cost about US$21 million equiv-alent, based on early 1976 construction costs, including contingency allowances,as shown in the table on page 19. Expected price increases were calculatedwith rates of inflation ranging between 13% and 12% for civil works, and 12%and 9% for consulting services during the period of 1976 through 1979.

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% ofS/ Millions US$ Millions Base

Local Foreign Total Local Foreign Total Cost FEC

A. Civil Works

(i) Babahoya-Balza-pamba roadimprovement 137.5 92.5 230.0 5.5 3.7 9.2 57 40

B. Supervision ofCivil Works 5.0 15.0 20.0 0.2 0.6 0.8 5 70

C. Programs and TechnicalAssistance

(i) Maintenanceprogram 12.5 32.5 45.0 0.5 1.3 1.8

(ii) Highway engineeringprogram 10.0 25.0 35.0 0.4 1.0 1.4

(iii) Highway planningprogram 5.0 7.5 12.5 0.2 0.3 0.5

(iv) Transport planning& coordination 10.0 20.0 30.0 0.4 0.8 1.2

(v) Local roadconstructionindustry - 2.5 2.5 - 0.1 0.1

(vi) Rural developmentstudy 5.0 10.0 15.0 0.2 0.4 0.6

(vii) Project coordina-tion 5.0 7.5 12.5 0.2 0.3 0.5

Sub-Total 47.5 105.0 152.5 1.9 4.2 6.1 38 70

Total Base Cost 190.0 212.5 402.5 7.6 8.5 16.1 100

D. Contingencies

Physical (10% of A) 15.0 10.0 25.o o.6 0.4 1.0Price Increase 1 57.5 40.0 97.5 2.3 1.6. 3.9

Sub-Total 72.5 50.0 122.5 2.9 2.0 4.9

Total Project Cost 262.5 262.5 525.0 10.5 10.5 21.0 50

1/ Price Escalation rates as follows:

(a) Foreign Exchange ElementCivil Works: 1976 13%

1977-79 12%Consulting Services: 1976 12%

1977-79 9%(b) Local Cost 1lement 1976, 20X varying to 1979, 12%

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4.14 The proposed loan would finance the foreign exchange component 1/of the project, amounting to US$10.5 million. This foreign exchange compo-nent represents about 50% of total project costs and assumes that the improve-ment of the Babahoyo-Balzapamba road would be executed by local contractorsand the various elements of technical assistance would be provided by foreignconsultants. The cost of consultant services was estimated on the basis ofan average of US$5,500 per man-month for foreign experts. Alternative sourcesof finance for the technical assistance element were investigated duringappraisal: (a) UNDP was approached, but was not prepared to consider therequest due to current commitments; (b) after a request for financing theforeign exchange cost of the rural development: study, FONAPRE agreed, and itwas reconfirmed during negotiations, to finance US$300,000 equivalent - upto US$100,000 in foreign exchange and the remainder in local currency - as maybe required for execution of this study (para. 4.11). Local costs for theproject would be financed by the Government, and an assurance to this effectwas obtained from the Government during negotiations. Retroactive financingof expenditures in foreign currency for project preparation after December 1,1975, in an amount not to exceed US$100,000 equivalent, is recommended.

4.15 Disbursements of the loan would be made as follows:

(a) for civil works, on the basis of 40% of payments tocontractors;

(b) for construction supervision: (i) 50% of total expendituresfor the required consulting services if contracted with localconsultants, representing the estimated foreign exchangeelement; or (ii) 100% of foreign expenditures if contractedwith foreign consultants; and

(c) for technical assistance, 100Z of the foreign exchange costof consulting services, except in the case of the ruraldevelopment study, for which the percentage of foreignexchange costs to be financed would be 75%.

Any funds remaining in the loan account on completion of the project would,with the Bank's approval, be used for high-priority highway project prepara-tion or other elements of technical assistance, which were reviewed duringappraisal.

I. Execution and Procurement

4.16 Project execution would be the responsibility of MOP, except thatother Government agencies would be involved in connection with technicalassistance for the rural development: study. Such agencies, and the scope oftheir involvement, were agreed during negotiations (para. 4.11). An imple-mentation schedule for the entire project, including the agencies involved,

1/ Except for an amount close to IrS$100,000 representing a part of theforeign exchange required for the rural development study (para. 4.11)and to be financed by FONAPRE (para. 4.14).

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is shown in Annex 9. In order to assist in following the progress of theproject during supervision, and to evaluate its success after completion,indicators by which the project may be monitored are shown in Annex 10.

4.17 Civil works for road construction and improvement would be carriedout on the basis of unit price contracts awarded after internatisnal compe-titive bidding in accordance with the Bank's Guidelines. The works would bedivided into contractual lots for bidding purposes, and firms, prequalifiedin a manner satisfactory to the Bank, would be allowed to bid for any lot orcombination of lots. Agreement was reached with the Government during nego-tiations on terms and conditions for civil works procurement including, spe-cifically, the type of price variation formulas to be used in civil workscontracts.

4.18 The implementation period would be about three years. The Babahoyo-Balzapanba road should be completed by the end of 1978 and the differentelements of technical assistance should be terminated in 1979. On this as-sumption, the schedule of disbursements of the loan is included in Table 6.Delays are not expected in acquisition of land that mWy be required for thecivil works; nevertheless, assurances were obtained during negotiations thatthe Government would take all necessary action to acquire, as and when needed,the necessary land and rights to carry out the civil works.

5. ECONOMIC EVALUATION

A. General

5.01 This economic evaluation concentrates on the construction of theBabahoyo-Balzapamba road (which, including supervision, would represent abot,-62% of estimated project base cost, with an economic return on the invest-ment of about 14%); quantifiable benefits are discussed in detail, and arindication is provided of non-quantifiable benefits which would result fromthe investment. A qualitative assessment only is made of the proposedinvestments in the other components of the project.

B. Improvement of the Babahoyo-Balzapamba Road

(i) General

5.02 The 49-km Babahoyo-Balzapamba road is part of the trunk road sys-tem of Ecuador and, specifically, for traffic between Quito and Guayaquil,is part of an alternate route which leaves the main road (the Pan-AmericanHighway) at Ambato, some 100 km south of Quito, and then proceeds in agenerally southwest direction through Guaranda, Balzapamba and Babahoyoto join the main road again between Milagro and Duran, close to Guayaquil.The route through Babahoyo is the more direct communication between Ambatoand Guayaquil, but, currently, its condition is very variable -- from goodand paved in some sections south of Babahoyo, to mostly very poor, betweenBabahoyo and the Pan-American Highway at Ambato. Because of this variationin condition, traffic between Quito and Guayaquil currently stays on thelonger, more southerly route through Bucay.

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5.03 The condition of the Babahoyo-Ambato road is gradually beingimproved, and the Babahoyo-Balzapamba. section is included in the project.However, the improvement of the road beyond Balzapamba, where it climbs theAndes to Ambato, is at present uncertain, and rot economically feasible.It is therefore unlikely that there would be a major diversion of trafficfrom other existing roads (connecting the Sierra with the Costa) to the projectroad; no diverted traffic has therefore been irLcluded in the economic evalua-tion. Improvement of the Babahoyo-Balzapamba section could be expected to:

(a) reduce vehicle operating costs and bnerease driver andpassenger time savings;

(b) reduce road maintenance costs; and

(c) provide all-weather road service to an importantagricultural area (para. 5.04), thus facilitatingits full development and avoiding sporadic inter-ruptions in the transport of produce.

Quantifiable benefits (a) and (b) are discussed in detail, and an indicationis provided of the benefits which should result under (c).

(ii) The Area of Influence

5.04 The Babahoyo-Balzapamba road gives access to some of the mostfertile agricultural lands in the Guayas river basin. The area of influ-ence of the road extends from the Babahoyo river (a tributary of the Guayas)toward the piedmont of the Andes. It covers Babahoyo county (population85,000) in Los Rios province and San Miguel county (population 65,000) inBolivar province. Although primitive, access to the area of influence, inaddition to the Babahoyo-Balzapamba highway, is more or less developed. Itis provided by a number of feeder roads, such as those to Hacienda Clementina,to San Joaquin, to San Jose del Tambo and the Montalvo-San Juan highway, andby a number of unchartered tertiary roads to the farms.

5.05 Agriculture in the area of influence of the project is developingin spite of the limitations imposed by a primitive road network resulting inpoor and costly transporbation. This is because climatic conditions, witha mean temperature of 25 centigrade and 1.8 m of rain a year, 1/ associatedwith excellent soils, make this area well fitted for a variety of tropicalcrops. The region is noted for its banana, cacao, coffee and rice production.On the higher areas around Balzapamba, citrus fruits, particularly oranges,are produced. Forestry, too, is an important activity. 2/ Livestock, onthe other hand, although widespread, is not among the main products in thearea because yields are low and quality is poor. As a result, agriculture

1/ With a distinctive rainy season between January and June and a six-seven year cycle of extraordinary rains during that season (as in1975).

2/ It is estimated that over 40% of the land is occupied by denseforest.

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and forestry are expected to be the main beneficiaries of the proposedworks. The major crops are sold in the Guayaquil and the Costa markets,and surpluses are exported, all being transported over the existing roadto Babahoyo and from there to their final destination.

5.06 An important project, located in the area of direct influence ofthe proposed work, is being implemented by the River Guayas Basin Develop-ment Commission (CEDEGE), an autonomous Government agency created in 1965.This project, based on an irrigation-drainage program, covers 12,000 ha ofland between Babahoyo and Montalvo, presently largely underutilized (only50% under cultivation). Of this area, about 7,500 ha would be used mainlyfor rice, taking advantage of favorable soil characteristics and the project'sirrigation schemes. In addition to rice, CEDEGE plans to use about 2,500 hafor annual crops such as soybean, maize, sesame and beans. The CEDEGE projectincludes extension services and technical assistance, as well as the necessaryinfrastructure, including a processing plant for drying, storing and millingrice. Although the CEDEGE project is being carried out independently of theproposed highway project, undoubtedly improvement of the existing road wouldbring large benefits to it, deriving mainly from reduced transport costs andfrom the existence of an all-weather road during the period of rice harvest.

(iii) Traffic

5.07 Existing traffic volumes on the road between Babahoyo and Balza-pamba were established through traffic counts and origin and destination (O&D)surveys conducted in 1974 by the consultants TAMS-ASTEC. Traffic varied from830 vehicles per day (49% heavy) in the Babahoyo bypass, to 390 vehicles perday (62% heavy) in the Babahoyo-Palmar section, 330 vehicles per day (62%heavy) in the Palmar-Montalvo section, and 200 vehicles per day in theMontalvo-Balzapamba section. In the absence of adequate historical data, morereliable indicators of traffic growth trends have been used in this evaluation,such as motor fuel consumption, vehicle registration, population and income inthe Los Rios, Bolivar and Tungurahua provinces, which, according to O&Dsurveys, account for most of the traffic on this road.

5.08 Estimates of total traffic, made on the assumption that the projectwould be fully opened in 1979, indicate traffic levels in 1980 from 1,320vehicles per day (AADT) in the Babahoyo bypass to 690 AADT and 600 AADT inthe Babahoyo-Palmar and Palmar-Montalvo sections, respectively, and 360between Montalvo and Balzapamba. By reducing the vehicle operating costssubstantially, the improved road would generate traffic at an estimated 15%of the total traffic (assuming a low elasticity of about 0.4 between generatedtraffic and reduction of vehicle operating costs). The ensuing 20-year trafficforecast implied an overall traffic growth rate of 8.0% per year until 1986and of 6.0% thereafter (Table 7). Long distance traffic attracted from otherroutes connecting the Sierra with Guayaquil has not been included in theprojections because of the substantial and still uncertain improvementsrequired between Balzapamba and Ambato to divert it (paras. 5.02, 5.03).However, the consultants estimated, based on O&D surveys, that, in 1974,

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about 150 vehicles per day (48% heavy) were likely to be diverted if theBalzapamba-Ambato section were imptroved. To the extent that this possiblefuture traffic is not included in the 20-year projections, project benefitshave been conservatively estimated.

(iv) Economic Benefits

5.09 Quantifiable benefits from the proposed highway constructionincluded the direct benefits derived by highway users - reduced vehicleoperating costs and driver and passenger timie savings. Other benefitswhich have not been included are a reduction in traffic accidents, reducedbreakage and spoilage of cargo and elimination in the sporadic interruptionsto traffic that occur during the rainy season. To the extent that the roadimprovement will produce such benefits, net benefits have been understated.In addition to road user savings, changes which are expected to occur in thecost of road maintenance as a result of the proposed improvements wereincluded in the evaluation.

5.10 As a basis for computing road user benefits, estimates of vehicleoperating costs were developed. These costs were prepared by the consult-ants, based on de Weille, 1/ modified according to their experience in Ecuadorand using Ecuadorean prices as input; the estimates were adjusted by theappraisal mission. A summary of the vehicle operating costs used for theproject is shown in Table 8.

5.11 The benefits resulting from savings in vehicle operating costsare expected to help both the producers and consumers of the goodstransported and, also, the econom:Lcally active population in the area ofinfluence. Truckers and bus owners would, in the first instance, benefitfrom the reduced wear and tear andl fuel consumption of their vehicles aswell as reduced turnaround times. However, based on the existence of ahighly flexible, unregulated and competitive transport industry, as reportedby the recent sector review mission, it is expected that these benefitswould ultimately be transferred in large measure to the final users of theservices. Additionally, the availability of every-day services, not subjectto unexpected interruptions caused by rain and floods, would particularlybenefit the agricultural sector and projects such as that of CEDEGE (para.5.06), which are largely dependent: on the availability of reliable transportto reach markets with their perislhable produce.

(v) Economic Evaluation

5.12 The proposed road is weLl justified, with an economic return (ER),based on the best estimates, of 14%. Sensitivity analyses have been carriedout on the main parameters affecting the economic evaluation (cost and benefits),showing that the ER would, even under adverse assumptions, still be acceptable(Table 9).

1/ Quantification of Road User Savings, World Bank Occasional PaperNo. 2, 1968.

- 25 -

B. Other Project Elements

5.13 Benefits were not quantified for the programs to improve highwaymaintenance, the engineering capabilities of MOP, the highway planning capabilityof MOP and the capabilities of the local civil works industry; neither werethey quantified for the integrated rural development study and assistance forestablishing a transport planning and coordinating agency. These elementsare considered justified in view of the anticipated large investments whichwill occur in the sector and the need to increase the efficiency in highwaymaintenance practices, design, planning and construction, as well as to pro-vide expertise which, in future years, may advise planning officials in othersectors of the economy regarding sound principles of project evaluation andimplementation.

6. AGREEMENTS REACHED AND RECOMMENDATION

6.01 During negotiations, agreement was reached with the Governmenton the following:

(a) terms of reference for technical assistance for thehighway planning entity within MOP (para. 3.11);

(b) selection of the First District of MOP for the maintenanceprogram, a timetable and the timing, and terms of referencefor technical assistance for the maintenance program(paras. 4.04 and 4.05);

xc) scope and timing of the programs relating to the improvementof the capability of MOP and of the local road constructionindustry, and the extent, timing and terms of referencefor the technical assistance to be provided and for theframework in which it will operate (paras. 4.06-4.08);

(d) terms of reference for technical assistance for the twostages of transport planning (para. 4.10);

(e) execution and timing of the integrated rural developmentstudy and the terms of reference for technical assistancetherefor, as well as the specific responsibilities of theGovernment agencies involved, including the provision offunds (para. 4.11);

(f) scope and terms of reference for technical assistance toaid MOP in project coordination (para 4.12); and

(g) terms and conditions for civil works procurement, itcludingthe type of price variation formulas to be used in civilworks contracts (para. 4.17).

- 26 -

6.02 During negotiations, assurances were obtained from the Governmenton the following:

(a) setting up of an appropriate and adequately staffed agencywithin MOP for land transport planning and coordinatingwithin one year after loan agreement, and establishing anappropriate unit for transport sector planning and coordinatingwith such organization within the Government and functions asshall be required for the purpose within two years afterloan agreement (para. 2.12);

(b) functions of the Sistema Nacional de Proyectos, with regardto land transport, to be the responsibility of the agencyto be established within MOP under (a) above (para. 2.13);

(c) keeping the dimensions, axle-loading and weight limits ofof vehicles within limits established by the law (Ley deCaminos) (para. 3.06);

(d) maintaining a unit for highway planning in the reorganized MOP(para. 3.11);

(e) Bank to be consulted prior to formulating the two-yearmaintenance program and equipment to be made availabletherefor (para. 4.05);

(f) no domestic contractor to be permltted to bid on paved roadconstruction projects called by MOP, unless such contractorwould have received technical assistance to be provided todomestic contractors under the project (para. 4.07);

(g) provision of funds for local costs (para. 4.14); and

(h) timely acquisition of land and rights for the civil works(para. 4.18).

6.03 The project would provide a suitable basis for a loan of US$10.5million equivalent for a period of 25 years, irncluding a five-year graceperiod.

March 15, 1976

TABLE 1

ECUADOR

FOURTH HIGHWAY PROJECT

Estimates of Transport Sector Expenditures Li(millions of current Sucres)

1970 1971 1972 1973

Highways 336.9 823.6 874.3 1,293.1

Railways 87.6 79.9 85.3 n. available

Ports3 n. available 162.9 165.6 183.6

Airports DAC2A n. available 90.0 n. available 115.o

Pipeline 4 35o.o 1,600.0 1,300,0 6.o

TOTAL

1. Unless otherwise specified, including operational expenditures, investments-,.and debt servicing.

2*/ Excluding road transport industry

_/ Excluding Esmeraldas, San Lorenzo, Salinas, Bahia de Caraquez, and Balaoports, and investments, but including debt serv.icing.

S/ Excluding airlines, taking into account only airport authorities and DAC

9/ Including only investments in two major pipelines, excluding operationalexpenditures.

Source: Mission estimates

September 1974

TABLE 2

KGADOR

RTfH HIGHWAY PROJECT

iiH : Network

(Kilometers)

Year Paved Gravel Earth Total

1963 8,413 7,211 / 15,624

1970 2,850 8,150 11,300 22,300

1973 3,1419 7,107 12,012 22,538

1/ Seasonal earth roads.

Source: National Transport Plan, 1964;Ministur of PuLblic Works, 1974; andMission Estimates

September 1974

ECUADOR

FOURTH HIGHWAY PROJECT

Vehicle Fleet by Categories

Passenger Jeeps and Mediuim Heavy /6Year Cars Pickups Trucks Trucks Others Total

1951 /1 _____-7,261 /1 ---- 310 4,479 - 12,050

1962 /1 ----- 22,566 /1 1,259 7,656 - 31,481

1965 /2 ----- 27,147 /1 ---- 1,515 9,210 - 37,896

1966 /3 - - - - - 41,421

1967 14,151 20,016 3,002 10,061 49 47,279

1968 14,719 22,191 3,o51 10,631 60 50,652

1969 16,403 25,448 3,330 10,572 75 55,828

1970 17,876 30,520 1,810 12,399 176 62,772

1971 20,186 37,991 3,479 12,717 94 74,467

1972 22,254 38,543 3,544 12,157 8,032 /4 84,530

1973 /5 - - - - 89,248 /5

1/ Breakdown between passenger cars and other light vehicles not available2/ Categories shown were calculated from total assuming same breakdown as in 19623/ Breakdown not available

Includes motorcycles and bicycles in Guayas Province:/ Preliminary figure, breakdown not available6/ This category includes buses

Source: Instituto Nacional de Estadistica, Direccion General de Transito, Interior Ministry

September 1974

TABLE L;

ECUADOR

FOURTH HIGHAY 1POJECT.

Highway Expenditures and Road User:s' Contribution

(Million of Current Sucres)

A. Highwa enditures 1970 1971 1972 ' 973

Operating Budget 24.0 23.0 38.1 8.8Consultants 11.9 5.1 15.6 24 4Highway Studies 10.6 3.5 6.3 16,2Highway Construction 236.2 703.1 675.0 859.8Highway Maintenance

and Improvements 84.2 82.6 121.0 320.0Highway Administration

and Supervision - 6.3 18.3 23.9

366.9 823.6 874.3 1,293,1

B. Motor Vehicle Contributions

Vehicle Registra 4- ionand licenses 15.0 16,0

Tolls 42.0 46.oImport duties on Vehicles 360.0 300.0Import duties on Parts 23.0 25.0Gasoline Taxes 292.0 325.CDiesel Taxes 101.0 121.0Tire Taxes 14.0 15.0

847.0 848.0

Source Expenditures: Budgeting and Accounting Department, MOPContributions: Mission Estimates

November 1974

TABLE 5

ECUADOR

FOURTH HIGHWAY PROJECT

Design Standards

Babahoyo-BalzapambaFlat 1/ Flat 2/ Mountainous 2/

Horizontal

Minimum Radius (m) 440 350 115

Width - Travelled way (m) 7.3 6.7 6.7

- Shoulder (m) 3.0 1.5 1.4

Vertical

Maximum Grade (%) 3.5 4.0 9.0 3/

Minimum Radius - crest (m) 85 60 13

- sag (m) 45 38 15

Sight Distance (m) 190 160 75

Design Speed (km/hr) 110 100 60

1/ Class II section (38 km).

2/ Class III section (11 km).

3/ Limited to a 200 m section.

Source: Ministry of Public Works (MOP)March 1976

TABLE 6

ECUADOR

FOURTH HIGHWAY PROJECT

Disbursement Schedu:Le

IBRD Fiscal Year OwCulative Disbursement atand Quarter Endins End of Quarter

(US$ Thousands)

September 30, 1976 350December 31, 1976 1,600March 31, 1977 2,800June 30, 1977 3,800

1977/1978

September 30, 1977 4,800December 31, 1977 5,700March 31, 1978 6,700June 30, 1978 7,800

1978/1979

September 30, 1978 8,600December 31, 1978 9,600March 31, 1979 10,000June 30, 1979 10,500

Assumptions:

Loan Effectiveness June 1976Bids for Civil Works Evaluated June 1976Contractors Mobilization September 1976All Technical Assistance Contracted January 1977Construction Completed March 1979

Source: Mission Estimates

March 1976

ECUADOR

FOURTH HIGiWAY PROJECT

Babahoyo-Balzapamba HighwayTraffic Flows CAADT)

Estimated 1980Length Actual- Average Annual Growth

Section Traffic (km) 1974 Total Ve&dIcles3i" Trucks 1974-78 1976b86 1987 -98

Babahoyo By-pass Normal 4 1,320 780 210 -330 7.0 6.0Generated - - - 8jo

Total 830 1,320 78OT TT m

Babahoyo-Palmar Normal 10 590 270 130 190 6.5 6.oGenerated 100 45 20 35 70Total 390 690 1 50 -22

Palnar-Montalvo Normal 24 510 230 115 i65 6.5 6.0Generated 90 20 30 7.0Total 330 6010 57

Montalvo-Baluapamba Normal 11 310 180 50 80 6.5 6.0Generated 50 30 5 15 7.0Total 200 360 210 TV 9

1/ Including pick-up trucks.

Source: TADI/A'TEC Feasibility Study, adjusted by the Appraisal MissionFebruary 1975

1s!

TABLE 8

ECUADOR

FOURTH HIGHWAY PROJECT

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

Babahoyo-Balzapamba RoadType of Vehicle PropoSed Road Existing Road Savings

Light Vehicle 1.].0 1.65 0.55

Bus 3.1.5 5.20 2.05

Truck 4.35 7.15 2,80

/1 Economic Costs, including driverst salaries forbuses and trucks, assuming free-running conditions.Costs as of October, 1975.

Source: TAMS cost schedules, adjusted by theappraisal mission 0

February 1976

ECUADOR

FOURTH HIGHWAY PROJECT

Economic Evaluation Results

Financial 1/ Economic 2/ Economic Evaluation Ba qdghw2LL Length Cost Cost on Best Estimates - Sensitivity Analysis t)

(km) (S/Million) (S/Milion) ER 4/ FR i/ Cost + 15, Benefit -25%

Babahoyo-Balzapamba 49 259.4 194.5 14 9.4 12 10

1/ Based on October, 1975 cost estimates, including 10% physical contingencies and project supervision and right-of-way --a time frame chosen Jo conform to the assumptions that were used in benefit calculations.

2/ Financial cost net of taxes.3' Basis for best estimates: (i) annual traffic and growth rates per Table 7; (ii) cost and benefits in 1975 prices;

(iii) project fully open to service in 1979; (iv) economic life of project, 20 years; (v) benefits include savingsin vehicle operating costs, including professional driver's salaries and road maintenance costs and passenger timesavings. Note: Passenger time benefits due to reductions in travel time accounted for about 201 of total quanti-fiable benefits. The ER without time benefits is 11%. Time benefits were computed on basis of the ,verage wage oflabor when travelling for business purposes. Based on the consultants' origin and destinatior. surv,jrs, about 40%of all passengers on buses, and nearly 70% of all passengers on light vehicles (including pick-up trucks) would beQravelling for business purposes.

ER = Economic ReturnC/ YFT First Year Return

Source: TAMS/ASTEC Feasibility Study, adjusted by appraisal mission

Tebruary 1976

1!\.

ANNEX 1Page 1

ECUADOR

FOURTH HIGHWAY PROJECT

Technical Assistance to ImproveMOP's Capability for Highway Planning

and Pre-investment Studies

Objectives

1. Technical assistance to the Ministry of Public Works (MOP) to im-prove its highway planning capabilities is proposed to be undertaken by con-sultants over a two-year period. The purposes of this assignment are toassist MOP in (i) organizing and operating an office for highway planning;(ii) preparing guidelines for highway feasibility studies; and (iii) provid-ing on-the-job training for local professional staff in the use of theseguidelines.

Scope of the Services

2. The services to be provided by the consultants will cover thefollowing areas:

(a) The preparation and putting into operation of a trafficcounting system for the country's highway network, includingorigin-destination surveys;

(b) The analysis and evaluation of the traffic data to be collectedand the manner and methods for retrieving and processing trafficstatistics;

(c) The assessment of the reasons why existing regulations governingvehicle axle loads are not effectively enforced, and a reviewof the incidence of overloading on the country's major routes.The consultants will recommend and help implement an effectiveprogram for enforcing adequate limits on axle loadings includingthe periodic collection, processing, interpreting, and retrievalof data for planning, pavement design, and maintenance purposes;

(d) The preparation of guidelines for highway economic feasibilitystudies and the training of professional local staff in theapplication of the guidelines. The services provided shouldcover the preparation of selected projects for possible pre-sentation to an international agency for financing.

ANNEX 1Page 2

Executing Government Agency and Counterpart Staffing

3. The Ministry of Public lWorks and Communications will be the con-tracting Government Agency. Counterpart personnel will be provided by theMOP. For the entire period of the services in Ecuador, the consultants will,through their day-to-day work, train the counterpart staff in their respec-tive disciplines.

Staffing

4. The technical assistance will be provided by specialists of theconsultants, totaling an estimated 50 man-months.

Timing and Reporting

5. The services will be provided over a period of two years. Progressreports at three-month intervals will be prepared during that period and, atthe end, a final report summarizing all work performed will be submitted.

November 1975

ANNEX 2Page 1

ECUADOR

FOURTH HIGHWAY PROJECT

Technical Assistance for Highway Maintenance

1. Technical assistance has been included in the proposed project fora maintenance program in the First Maintenance District of MOP (coveringthe Provinces of Carchi, Imbabura, Pichincha, and Esmeraldas). Thisassistance is described below.

Objectives

2. Upon review of the performance in highway maintenance by the Govern-ment over the last decade, with special reference to the five-year maintenanceprogram financed under the consortium highway project, the following majorobjectives have been set:

(a) to ensure that the national road network will be maintainedin accordance with sound engineering and adequate technicalcriteria, including considerations for current volumes oftraffic;

(b) to ensure a rational allocation, and efficient use, of themaintenance budget of MOP; and

(c) to build up and maintain an administrative and technical staffcapable of managing the business of highway maintenance in thecountry.

Scope of Assistance

3. One of the four maintenance districts will be selected by theGovernment, with the Bank's concurrence, for conducting the proposed program.

4. The consultants will first review the entire Maintenance Departmentof MOP, including, but not necessarily limited to, the following:

(a) personnel policies, and the qualifications and distribution ofpersonnel within the Department, in Quito as well as in the fourmaintenance districts;

(b) an inventory of the assignment and condition of maintenanceequipment in the country;

(c) current maintenance practices through the Department, covering(i) road inventory techniques; (ii) scheduling of roadmaintenance works; (iii) routine and periodic maintenance

ANNEX 2Page 2

operations; (iv) equipment management, operation, and maintenance;and (v) maintenance contracts with the private sector; and

(d) existing procedures for planning, budgeting, and controllingmaintenance throughout the Department.

5. Upon completion of the above revtewq, the consultants will determine,specifically for the First Maintenance District, the need for:

(a) purchase of new equipment;

(b) reassignment of equipment;

(c) improvement in techniques for, and scheduling of, routineand period.Ic maintenance operations;

(d) improvement of equipment management: and operations;

(e) improvement of garage and workshop operations; and

(f) improved planning, programming, budgeting and controllingof maintenance activities.

6. UJpon their review of personnel under paragraph 4 preceding, theconsultants will identify short-range and long-term training needs for al'llevels of staff, in terms of both on-the-job training and structured trainingrequirements. Upon consultation with the BaLnk and after review of the con-sultants' recommendations in this respect, in-service training will be pro-vided in the First Maintenance District and, to a limited extent, in theCentral Maintenance Department, by the consultants providing technical assist-ance, whereas more formal training requirements will be met by the Government.

7. Upon completion of their recommendations under paragraph 5 preced-ing, the consultants will formulate a two-year maintenance program for theFirst Maintenance District, taking into account the need for improvedtechniques in routine and periodic maintenance operations, improved equipmentmanagement and operations, improved garage arnd workshop management, and im-proved planning, programming, budgeting, and controlling procedures.

8. During the two-year program, technical assistance will be providedto implement the recommended improvements. I'he consultants' personnel willbe assigned during this phase to the selected district, as well as to theCentral Maintenance Department, to advise local personnel in carrying out theprograms and, more specifically, in establishing coordination between theFirst Maintenance District and the Central Department under MOP.

9. After the first year of the two-yeaLr program, allowing for a feed-back, the consultants will evaluate progress and modify policy procedureson the basis of the experience acqluired, thus; making the revised procedures

ANNEX 2Page 3

available for implementation in the remaining three districts of the country.On this basis, the consultants will also prepare a draft maintenance program

for the whole country to be carried out by MOP, including the purchase of

equipment needed.

Executing Government Agency and Counterpart Staff

10. The Maintenance Department of MOP will be the contracting Govern-

ment agency, with overall responsibility under the Directorate General of

Public Works. Counterpart personnel will be provided from among permanentemployees of MOP in the same specialties as those listed under paragraph 11

following.

Staffing

11. The technical assistance will be provided by the following

specialists of the consultants:

(a) highway maintenance engineers (one with administrative and

management experience, and another with stronger technicalbackground);

(b) garage and workshop superintendents;

(c) mechanics;

(d) field maintenance superintendents.

A total of about 200 man-months will be required during the period of three

years.

Timing and Reporting

12. The consultants providing technical assistance will be required to

report to MOP as follows:

(a) an inception report containing the consultants' diagnosis of

the Maintenance Department in general, with specific referenceto the selected maintenance district, two months after mobilization;

(b) an interim report recommending improved work methods and managementprocedures, including training, six months after mobilization;furthermore, this report will outline the recommended two-yearmaintenance program;

(c) a second interim report containing a review of proceduresprepared on the basis of feedback from the first year of thetwo-year program, and a draft maintenance program for thewhole country, 18 months after mobilization;

(d) monthly progress reports during the three-year period; and

(e) a completion report evaluating the whole 33-month program.

February 1976

ANNEX 3Page 1

ECUADOR

FOURTH HIGHWAY PROJECT'

Technical Assistance for High-way Engineering

1. Technical assistance has been included in the proposed project foradvising MOP in applications of highway engineering. This assistance isdescribed below.

Objectives

2. Upon preliminary review cf performance of MOP in highway engineer-ing, and particularly in preparing detailed engineering for the proposed pro-ject, the following major objectives have been set:

(a) to ensure that the Highway Design Department under MOPacquires the expertise, and to build up the qualified staffnecessary to carry out,to the limited extent required, andcontract and supervise the execution of, preliminary andfinal highway design;

(b) to ensure that adequate engineering inputs are availablein MOP for preparing technical spec:ifications and contractdocuments for highway projects; and

(c) to improve current highway design practices in Ecuador byadapting more modern technologies previously not applied inthe country.

Scope of Assistance

3. The consultants will review the Highway Design Department of MOP,including, but not necessarily limited to, the following:

(a) current design standards in the whole spectrum of highwayengineering, with special reference to design methodsprepared in 1973;

(b) qualification and assignment of personnel; and

(c) current procedures for preparing, contracting, and monitoringengineering design work.

4. Furthermore, the consultants will review the qualifications ofpersonnel and the working methods of the Soils and Materials Laboratory ofMOP.

ANNEX 3Page 2

5. Upon completion of their review, the consultants will comment ontheir findings and recommend specific technical assistance, which will begiven, preferably in connection with designing an actual road, covering, butnot necessarily limited to, the following:

(a) geometric design, survey works, stake-out requirements,computer applications for earthwork calculations, includingmass diagrams and grades;

(b) highway capacity evaluations and, if possible, adaptation ofavailable calculation methods to Ecuadorean conditions,particularly for trunk roads;

(c) soils and materials studies, field explorations based onboth traditional direct, and more modern indirect methods,sampling techniques for different purposes, and the entirerange of laboratory testing required for design and con-struction of embankments, pavements, structures, and founda-tions. The concept of statistical quality control, andstatistical design parameters will be adapted, and standardswill be formulated for Ecuadorean soils and materials con-ditions, taking into account the natural variation of theircharacteristics;

(d) pavement design, including thickness, design methods andmaterials utilization; attempts will be made to adapt low-cost,surface-treated pavement designs to Ecuadorean conditions (forinstance, methods previously elaborated by USAID for Africa andBrazil), and to define composition of Ecuadorean commercialtraffic, thus ensuring that pavement design is responsive tolocal conditions;

(e) structural design of bridges, large culverts, retainingwalls (both the conventional gravity type and the anchoredtype), and other stabilizing structures, including thefoundation; and

(f) review of the standards of presentation for preliminary andfinal engineering design and contracting procedures therefor,as well as. recommendations to standardize presentation forall consulting services contracted by MOP (standards for pre-liminary engineering design will correspond to those requiredfor feasibility studies).

6. In addition to the different areas of highway engineering discussedabove, the consultants will review, and recommend modifications as required,technical specifications and contract documents (the consultants' workwith respect to contract documents will be coordinated with the consultantsto the domestic construction industry) as follows:

ANNEX 3Page 3

(a) reviewing the adequacy of existing specifications for majorhighway construction and preparing standard specificationsfor secondary and feeder roads;

(b) ensuring that statistical design parameters are introducedto the entire spectrum of engineering design;

(c) ensuring that contract documents published for bidding andthe bidding procedures, including evaluation criteria, arebased, among other things, on adequate engineering inputs.

Staffing

7. The technical assistance will be provided by the following special-ists on the consultants' staff:

(a) highway engineer designer (preferably with highwaydepartment experience);

(b) structural engineer;

(c) soils and materials engineer and pavement specialist; and

(d) highway designer with systems background and ability todesign programs.

A total of about 160 man-months will be required during the period of threeyears.

Executing Government Agency and Counterpart Staff

8. The Highway Design Department and the Soils and Materials Laboratoryof MOP will be receiving the technical assistance; the highway design depart-ment will be the contracting Government agency with overall responsibilityunder the Directorate General of BHighways. Counterpart personnel will beprovided from among permanent employees of MOP in the same specialties asthose listed under paragraph 7 preceding.

Timing and Reporting

9. The consultants providing technica:L assistance would be requiredto report to MOP as follows:

(a) an inception report containing the consultants' findingsand recommendations for a specific plan of action twomonths after mobilization;

(b) monthly progress reports during the three-year period; and

(c) separate manuals and/or written design procedures to beissued as completed.

February 1976

ANNEX 4Page 1

ECUADOR

FOURTH HIGHWAY PROJECT

Assistance to Domestic Road Construction Industry

1. Technical assistance has been included in the proposed project for

the domestic road construction industry. This assistance is described below.

Objectives

2. Upon a preliminary review of the performance in highway construction

by the domestic construction industry and of the problems faced by the industry

currently, the following major objectives have been set:

(a) to improve bidding procedures and standard conditions ofcontract so that they will be more responsive to localconditions in general, but specifically dealing withproblems arising from inflation;

(b) to help improve performance -- technical, managerial,and financial-- of domestic civil works contracts,particularly in the area of highway construction; and

(c) to help improve the Ministry of Public Works' (MOP)posture vis-a-vis civil works contractors, particularlydomestic contractors engaged in highway construction.

Scope of Assistance

3. The consultants will review the country's environment with respectto the civil works construction industry, particularly of highway construction,diagnose the performance of the construction industry, and identify relatedproblems on the basis of the following: (i) the Bank's Sector Brief (Chapter2, Volume II); (ii) contacts with, and a review of, the local trade association

of contractors; (iii) contacts with, and review of the role of, engineeringconsultants; and (iv) a review of MOP's procedures for preparing, contracting,supervising and monitoring civil works construction projects. Upon completingtheir review, the consultants will prepare a written summary of theirdiagnosis and recommended action for:

(a) specific measures for improving standard conditions ofcontract, including price variation formulas;

(b) improvements in the effectiveness of the local tradeassociations;

ANNEX 4Page 2

(c) selection of a group of contractors who would receivetechnical assistance;

(d) a detailed program outlining the technical assistance neededby contractors (technical, managerial, financial), and theneed for training of their personnel; and

(e) improvements in MOP's working orocedures for preparingprojects, bidding, contracting, supervising and monitoringhighway construction projects.

4. In addition to their review under paragraph 3 preceding, the con-sultants will collect data for the period 1972-1975 on four indicators whichare specific to the proposed assistance, and on four additional factors whichare related to the general status of domestic highway contractors engaged byMOP; these indicators are outlined in detail in Annex 5, which will serve asa basis to this data collection.

5. The specific plan of action for technical assistance to be preparedby the consultants, as described in paragraph 3 preceding, will concentrateon individual contractors registered in the Construction Department ofMOP; such plan of action will include elements of in-service and/or structuredtraining. The action proposed will cover, but not necessarily be limited to,the following:

(a) for the domestic contractors

(i) forms of prequalification, bidding, and contractdocumentation, including conditions of contract,specifications, drawings, bonding, methods of pay-ments, claims and arbitration, etc.;

(ii) estimating of costs and pricing of bids, includingrisks analysis;

(iii) record-keeping for cost control;

(iv) programming and scheduling of civil works, includingmobilization, equipment maintenance, materialspurchase and storage;

(v) general financial planning and budgetary control; and

(vi) personnel management and training.

ANNEX 4Page 3

(b) for MOP personnel

(i) preparation of proper prequalification, bidding, andcontract documentation;

(ii) evaluation of prequalification and bidding submissions;

(iii) the duties and responsibilities of "engineer" and"employer";

(iv) supervision and site records;

(v) payment provisions and procedures; and

(vi) disputes and arbitration.

Staffing

6. The technical assistance will be provided by the following special-ists of the consultants, or by individual consultants comprising the follow-ing specialties:

(a) civil works contract specialist (with considerable experiencein contracting, management, and finance);

(b) highway engineer with construction and supervision experience; and

(c) workshop superintendent with experience as equipment mechanic-- if recommended for the second phase of the technical assist-ance.

A total of about 20 man-months will be required during an 18-month period.

Executing Government Agency and Counterpart Staff

7. The Construction Department of MOP and individual contractorswill receive the technical assistance. MOP will be the contracting Govern-ment agency. Counterpart personnel will be provided from among permanentemployees of MOP in the Construction Department; when individual contractorsare selected for technical assistance for the second phase, their managerialand technical personnel will be considered as counterparts to the proposedprogram.

Timing and Reporting

8. The consultants providing technical assistance will be requiredto report to MOP as follows:

ANNEX 4Page 4

(a) an inception report containing the consultants' diagnosisof the construction industry and MOP, and their specificrecommendations for technical assistance during 10 months,two months after mobil:Lzation;

(b) monthly progress reports throughout the duration of the 10-monthprogram; and

(c) a completion report upon termination of the technical assistanceidentifying the need for future efforts by the Government andby the construction industry itself.

February 1976

ANNEX 5Page 1

ECUADOR

FOURTH HIGHWAY PROJECT

Factors for Post Completion Monitoring ofDomestic Construction Industry

Factors Specific to Technical Assistance

(a) Introduction of price escalation formula in civil workscontracts (date, particulars, etc.).

(b) Incidence of cost overruns, measured as the average ofoverruns for projects completed in a given year andexpressed as a percentage of the initial contract amounts.

(c) Incidence of time overruns measured as the average ofpercentage time overruns on contracts completed in a givenyear.

(d) Time lag of MOP payments of civil works contracts, measuredas the average period of collecting invoices by the tenlargest contractors working for MOP, and expressed as the timeellapsed between the date of approval of an invoice by thedistrict engineer and/or supervisory consultants, and thedate on which MOP authorizes payment.

Factors Relating to General Status of the Domestic Highway Construction Industry

(a) Number of domestic firms registered in MOP (or members oftrade association).

(b) Capital subscribed.

(c) Value of work executed annually.

(d) Number and value of contracts awarded annually.

September 1975

ANNEX 6Page 1

ECUADOR

FOURTH HIGHEWAY PROJECT

Terms of Reference For Transport Planning and Coordination

Objectives

Technical assistance for transport planning and coordinatingwill be provided by consultants over a period of nearly three years in twostages, with the objectives of enabling the Government to:

(i) formulate a detailed, medium-term and a prospective long-termprogram of transport investments;

(ii) improve planning and organization of each transport mode;

(iii) improve transport policies, especially those related toeffective coordination among all modes of transport; and

(iv) assist the Government in setting up, first, the planningunit for land transport within MOP, and, as a second stage,the sectoral planning unit within the Government structureto be decided later; recruit and train adequate Governmentpersonnel in transport p:Lanning; and provide on-the-jobtraining to ensure that, by the end of the three-yearperiod, MOP and the sectoral planning unit to be createdwill be capable of carrying on their functions withoutfurther technical assistance.

Scope of Consultant Services - Technical Terms of Reference for TPCU

The services to be provided by the consultants will cover the sameareas as those in which the Government planning units will act after theirestablishment. The consultants' personnel w:Ll work side by side with counter-part staff assigned by Government on a permanent basis in order to initiateand continue action in the following areas:

1. Sectoral Economics and Planning (Multimodal)

(a) the review, compilation and updating of data on trafficgenerating sources and preparation of traffic forecasts;

(b) the determination of financial and economic operatingcosts for the several modes of transport under variousoperating conditions;

(c) the analysis of economic benefits to be derived fromrecommended transport programs and the determination ofeconomic priorities of ma1or programs;

ANNEX 6Page 2

(d) the review and analysis of current and proposed Governmentlaws, regulations and procedures relating to transportpricing, entry and route permits, determining to whichextent these are effectively implemented; analyzing theeconomic and social objectives of these regulationsand their effectiveness;

(e) the determination and analysis of total distribution costsfor major commodities by each of the various modes fordomestic and international traffic, examining the tradeoffbetween service, time and cost and the effect that userchoices for various transport services have on the finalcost of the commodity to the consumer;

(f) the review and analysis of the present structure and levelof user charges in the various transport modes and therelationship between charges and economic costs; and

(g) the formulation of criteria to evaluate and selecttransport investments and the recommendation of proceduresfor reviewing and updating transport investment programs,determining their economic feasibility and priority con-sidering budgetary constraints.

2. Sectoral Statistics and Information Systems

(a) the revision and evaluation of existing transport data,identifying areas where additional and more reliable dataare required; and

(b) the type of data to be collected, the format for presentingthe data for analysis and the methods of storage, as well asthe preparation of forms for the collection of data and themethods of collection, all at the lowest cost sufficient tomeet the planning requirements.

3. Modal Reviews and Evaluation _/

Regarding the various transport modes, such as railways, highways,road transport, ports and shipping, airports and civil aviation and urbantransport, the consultants will:

(a) review and evaluate existing infrastructure and transportcapacity, identifying problem areas and making recommendationsfor improvements, in order that services adequately meetingconsumer demand be provided at reasonable prices;

1/ In case of the highway mode, the consultant will simply coordinate withconsultants providing assistance in highway planning (Annex 1) andincorporate their results in the multimodal system.

ANNEX 6Page 3

(b) review traffic data collecting systmem, traffic countingprograms, and origin and destination surveys, includinginternational and domestic traffic;

(c) analyze and evaluate transport costs (financial and economic)and tariffs of the several modes and the financial situationof the modes, and recommend policies and systems of tariffsconsistent with economic development;

(d) assess the policies and regulations governing the variousmodes, determining the extent to which these policies andregulations are effective in furthering economic development;and

(e) formulate criteria to evaluate investments in the various modesand establishing procedures for reviewing and updating investmentprograms and determining their feasibility and priority.

4. Executing Government Agency and Counterpart Staffing

The contracting Government: agency will be MOP for both stages. Full-time counterpart personnel will be provided by MOP in the same specialties asthose listed under 5 following. FoI- the entire period of the services inEcuador, the consultants will, through their day-to-day assistance and advisoryservices, train the counterpart staff in their respective disciplines.

5. Staffing

The technical assistance will be provided for two years by thefollowing specialists of the consultants:

Estimated Man-months

Team Leader/Coordinator 24Transport Economist 24Statistician 12Financial Specialist 10Information Specialist 12Other Specialists:

Railways 8Highways 6Ports and Shipping 6Aviation and Airports 6Urban Planning 6Road Transport 6

TOT AL 120

ANNEX 6Page 4

6. Timing and Reporting

The consultants' services will be carried out in three steps:

Phase I (Months 0-3)

To review existing organization of all transport modes andformulate detailed terms of reference for the two stages oftransport planning (i.e., land transport and sectoral plan-ning) on the basis of outline under 1 through 3 above. Theterms of reference will be incorporated into an inceptionreport to be submitted at the end of this phase.

Phase II (Months 4-15)

To analyze Ecuador's transport system, including arrangementsto collect required data, carry out the work described under Ipreceding, train counterpart personnel, prepare recommendationsand commence implementation of agreed recommendations. Duringthis phase,progress reports at three-month intervals after theinception report will be prepared.

Phase III (Months 16-24)

To prepare a draft transport plan for Ecuador, including invest-ment plans, recommendations for sectoral policies includingpricing, regulation, and institutional matters, and to assistin its initial implementation as well as to prepare the sectoralplanning unit's long-term work program. During this phase, theprogress reports will be continued, and, at the end, a finalreport, summarizing all work performed and presenting technicalmanuals, will be submitted.

March 1976

ANNEX 7Page 1

ECUIAOR

FOURTH HIGHWAY PROJECT

Integrated Rural Development in the Area of Influenceof the Puerto Ila-Garrapata Road

Outline of Proposed Developmene Study

Objectives

1. A study is proposed to be undertaken by consultants to define andanalyze the area of influence of the proposed road and to propose an integralplan for the balanced development of the area in order to assure that theinvestments made in the road and those recommended by the study in the area'sproductive sectors are fully profitable, while at the same time improving theincome levels of local farmers. The study should also make recommendationsseeking that structural and institutional deficiencies are corrected.

Scope of Services

2. The services to be provided by the consultants will cover thefollowing areas:

A. Diagnosis and Preliminary Information

(a) Recompilation of existing studies and basic data;

(b) Additional data collection;

(c) Analysis of the naturaLl resources of the area;

(d) Present land use;

(e) Land tenure and structure;

(f) Human resources;

(g) Commercialization of produce;

(h) Credit sources and availability; and

(i) Extension services.

ANNEX 7Page 2

B. Investment Program

3. Based on the information gathered in Stage 1 and on the observationsof the consultant, a comprehensive program of action and investments shouldbe prepared, covering the following areas:

(a) Production targets;

(b) Investment targets;

(c) Support services required;

(d) Investment in support and social services; and

(e) Total annual investments required.

C. Institutional Development Program

4. Based on the information obtained in A and following the objectivesdefined, the consultant should propose plans for the institutional changesrequired to implement the Investment Program. In particular, the followingshould be studied:

(a) Necessary changes in land tenure;

(b) Definition of optimal farm sizes in accordance with soilcharacteristics, land use, etc.

(c) Forest management;

(d) Markets for produce;

(e) Government institutions; and

(f) Management of the projects.

Executing Government Agency and Counterpart Staffing

5. The Ministry of Agriculture alone, or in association with theMinistry of Public Works and Communications, will be the contracting Gov-ernment Agency. Counterpart personnel will be provided by the Government.For the entire period of the services in Ecuador, the Consultants will,through their day-to-day work, train the counterpart staff in theirrespective disciplines.

Staffing

6. The technical assistance will be provided by specialists of theconsultant, totaling an estimated 40 man-months.

ANNEX 7Page 3

Timing and Reporting

7. The services will be provided over a period of nine months.Bi-monthly progress reports during the execution of the study and, at the end,a final report snmmarizing all work performed and containing the detailed in-vestment program and the institutional development program will be submitted.

September 1975

ANNEX 8Page 1

ECUADOR

FOURTH HIGHWAY PROJECT

Technical Assistance for Overall Project Supervision and Coordination

1. Since the project comprises a wide variety of components, includingseveral sectors outside the Ministry of Public Works (MOP), technical assist-ance has been included in the project to aid the Government in supervisingand coordinating project activities.

Objectives

2. The main objectives will be to assist:

(a) MOP in supervising all project activities;

(b) MOP in coordinating with other Ministries and Governmentagencies for implementing the project;

(c) MOP in preparing required progress reports to the Bank; and

(d) the Bank in supervising the project in Ecuador.

Scope of Services

3. The technical assistance provided would be responsible for reportingprogress under the project and advising MOP and other Government Ministriesand agencies, as well as the Bank, of important target dates in the Implemen-tation Schedule (Annex 9), critical delays, or the lack of action in specificareas, which may slow down project implementation in general.

4. With respect to civil works, the project coordinator and supervisorwill, among other things:

(a) review progress in the procurement of contracts, in civilworks, and in the documentation required of the Government forBank disbursements;

(b) review recommended design changes and contract amendments,and recommend action to MOP and the Bank; and

(c) monitor the level of construction supervision by consultants,their quality control and supervision of contract finance.

ANNEX 8Page 2

5. With respect to the technical assistance component of the project,the project coordinator will aid .MOP, JUNTAPLAN, and other Government agenciesinvolved in project implementation in:

(a) coordinating the different elements of technical assistanceat the administrative and technical levels;

(b) procuring consultants' services, scheduling their work,revising terms of reference and drafting contracts;

(c) monitoring contractual pyerformance of consultants in mobilizing,moving staff, proposing changes in staff and reporting; he willcontact MOP and the Bank for action as necessary;

(d) monitoring contributions from the different Ministries,Government agencies and their departments in logisticalsupport, provision of ccunterpart staff, payments, aswell as in technical areas; and

(e) monitoring the technical aspects of the consultants' work,in order to identify problems, review detailed methodologiespresented by the consultants, and review training requirements,including on-the-job training of counterpart staff.

6. The project supervisor and coordinator will work closely with theMinister of Public Works, or his designated representative, in order to:

(a) assist MOP at all levels for adequaLte coordination withother Ministries and Government agencies;

(b) ensure that decisions and action required of MOP areforthcoming in time to meet project target dates;

(c) secure efficient communications among the different departmentsof MOP which may be responsible for interrelated elements of theproject;

(d) ensure that interdepartmemtal meetings within MOP, as well asmeetings with other Government agencies and Ministries, withspecial reference to Junta Nacional de Planificacion, Ministryof Defense, Ministry of Agriculture, Ministry of Finance, andFONAPRE,take place as required for timely decisions on mattersrelating to the project;

(e) keep the Bank advised of all developments under the project,and recommend timing of, and assist in arrangements for,Bank supervision missions; and

AANNEX 8Page 3

(f) maintain liaison between the Bank and those Government agenciesinvolved in execution of the project.

Staffing

7. The staff required will comprise one senior highway specialist,preferably with experience in contract monitoring and administration. Atotal of about 36 man-months will be required of this expert during thefull duration of the project.

Executing Government Agency and Counterpart Staff

8. The project supervisor and coordinator will be attached to theMinister of Public Works or his designated personal representative,possibly the Subsecretary General of MOP, who would be his counterpart.MOP will be responsible for hiring the coordinator and for employing himin accordance with terms of reference herein outlined. In addition, MOPwill furnish an office and logistical support as needed.

9. The coordinator will always contact other Ministers, or heads ofGovernment agencies, through the Minister of Public Works, whereas hiscounterpart, the Subsecretary General of MOP, will maintain liaison withother ministries at his own level. The coordinator will keep contact withthe Bank through the Minister of Public Works.

Timing and Reporting

10. The project coordinator will prepare, on the basis of reportsreceived from the various consultants, the following documents:

(a) monthly progress reports for the Bank, dealing with theentire project;

(b) an interim report evaluating the effectiveness of projectsupervision and coordination one year after the projectbegan; and

(c) a comprehensive completion report after the last disburse-ments were made by the Bank for appraised elements of thisproject.

November 1975

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ECUADOR

APPRAISAL OF A FOURTH HIGHWAY PROJECT

Project Indicators, Babahoyo-Balzapamba Highway

(Traffic Volumes, AADT)

Type of Babahoyo By-pass Babahoyo-Palmar Palmar-Montalvo Montalvo-Balsapamba

Y E A R Vehicle Forecast Measured Forecast Measured Forecast Measured Forecast Measured

Completion Date Light 1/BusTruck

Completion Date + 1 year LightBusTruck

Completion Date + 2 years LightBusTruck

Completion Date + 3 years LightBusTruck

Completion Date + 4 years LightBusTruck

1/ Passenger cars, jeeps and pick-ups

October 1975

IBRD-11882R1

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ECUADOR

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