Dwomwent o

'The Wor-ld Ba3nk

FMR omciAL USE ONLY

R-p. No. P-4960-KO

IMSORANDUM AND RECOlN( DTION

OF THE

' PRSIDEN OF TRE'

INTRATIORA AN FOR REONSTRUCION AND DEVELOPNT

TO TER

EXECUTIVE DIRECTORS

-ON A

PROPOSED LOAN

in AN AMNT EQUIVALEN To US20O.O MIION

To THE

REPUBE.IC OF KOREA

FOR A

ROAD IMPROVIET PROJECT

APRIL 20, 1989

This documet has a resticed distribution ad may be used by rcpents only In the perlorinmn oftheir offic dutles. Its contents may oot otewis be dicleed without Wod Bank hoo

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.;/~~~ ~~~~~ 700 (a of Noeno 1 1988) e v -S14 V ,-..00

FCSCAt

US$1 - Va 700 (aDeemof 3oebe1 , 98

.~~~~U$,2 ... I . ai, .o.

Jaur 1. December3

1 meter. (M) -3.2808 fepet (ft)1 kilometer (kcm) - 0.62 mile (mi)

,

Isquare kilometer (c2 - 0.3861 square mile's (sq mi)lhectare (ha) - 0.01 kmrr 2.4711 acres (ac)1 kilogram (kg) 2.2046 pounds (lbs),I metric ton (m ton) - 2.204.6226 pounds (ibs)1.1023 U1hort tons(sh tons or 2,000 lbs) 0.982 long tons (lg ton or 2,240 lbs)

ABBRI&IQBTIOLSANDACROYMS

ERR E conomic Rate of ReturnGNP2 Grs W Natlionl .Prodw -

MOC Minstryof Cttl~ioVOC, - vehicle operating costs

Ka OfICUL USE ONLY

Lou ad proaect Iona

Republic of Korea

US$200 million equivalent

og~in": Repayable in 15 years includLng S years of grace, at thestandard variable Laterest rate

FLnancing ln

- - - - gU8$ million) - - - -

Government 313.1 . 313.1Ban - 200.0 200.0

Total L.

Of get=urn: 27%

Staff praisalr:\rt. Report No, 7556-K(0

No. IBRD 21309

ThM document has a restic d 4_oftuon ud my be _W by tsskaw mly in Xt Pefomeof tb o dute. tls lonteots ma not dohvi be dbsokd thou Wod huk au_tbelt.

INMRAND MD RECOMM'JATION OF THE PRESIDENT- OF INTERATIONAL IK FOR RECONSTRCTION AND DEVELOIENT

TO THE MECUTIVfl DIRECTORSON A PROPOSED LOAN

TO THE RIMPULIC OF KOREA_ FOR A IPOAD IMROVENT PROJECT

1. l Th following memorandum and recovnendation on a proposed loan tothe Republic of Korea for US$200 mlllion eltuivalent is submittod for approval.The loan would help finance a road improvement project and would be for a termof 15 years, including 5 years of grace, at the Bsnk's standard variable interestrate.

22. B dkgrond. The successful economic performance in Korea hascreated significant demand for transport of all types. The Government's strategyhas been to increase capacity and modernize the transport system ln line withdemand. In addition to the Vrowth of demand, there has been-a substantial changein the modbl distribution with the-previously dominaut role of the railways beingreplaced by a more balanced distribution of traffic among rail, coastal shippingand road for freight, and between road and rail for passenger transport. TheBank has supperted the Government's objectives in the transport sector and hashelped finance projects in rail, ports and highways. Previous operations in theroad sector have assisted in the Ldentification of many sector issues and havesupported actions to improve policies and to strengthen institutions. - TheGovernment has assigned high priority to continuing Bank assistance for roaddevelopment because of the still substantial investment needs and to providecontinuity in the implementation initiatives on road maintenance systems andsafety.

3. lbe Road System. The public road network totals about 54,700 kmcomprising 1,540 km of expressways, 12,252 km of natlonal roads (in addition tothe expressways), 10,300 km of provincial r -1s, 12,900 km of county roads and17,700 km of urban streets. In addition there are about 52,400 km of villageaccess roads. The national expressways are toll roads. These figures representa doubling of the road network from about 27,000 'km in 1962. About 82% ofnational roads are paved but much of the network of provincial and country roadsstill needs improvement. Despite heavy investments in road improvements since1967, only 41% of provincial roads and 21% of county roads were paved as of 1987and a high level of imestment will continue to be required to ensure an adequatelevel of service for growing traffic volUmes and maintenance of existing assets.Unpaved roads, including some national roads, continue to have poor gravel orearth surfaces, despite some recent improvements. The physical condition of mostunpaved roads in such that driving speeds are very low, driving conditions areunsafe and transport costs are high. On some of the more heavily travelledsections of the paved road network where traffic volumes have increased rapidly,congestion is becoming saproblem and road capacity increases are much needed.

4. Rationale for Bank Involvement. Bank lending to Korea has beenscaled down considerably but is being continued at a modest level consistent withthe country's still large external debt, and the vulnerability of its economyto world market conditions, and in light of growing fiscal pressures arising fromwon appreciation, expanding budgetary outlays for accelerated social sectorprograms, higher wages and increasing production costs. The Government is not

2

taking the current external financial surpluses and Korea's standing in overseasmarkets for granted. In the context of a prudent borrowing program, theGovernment has assigned high priority to continued Bank assistance for roaddevelopment. Improved transportation infrastructure is important to advance theGovernment's Sixth Plan policies aimed at the integrated development of smallcities and rural areas and reduced regional disparities. The road networkremains a high priority, with significant benefits to be derived from investmentin many roads that are still unpaved or require capacity expansion. The proposedproject is also the logical continuation of the Bank's previous efforts in theroad subsector and builds on specific program initiatives begun earlier,including the improvement of road maintenance and road safety. Both road safetyand maintenance systems are areas where Korea's knowledge and experience lagbehind the general level of development and where external expertise, organizedthrough Bank-supported projects, ,an be inexpensively and successfully appliedto Korean conditions.

5. Project Objectives. The proposed project is to increase transportcapacity during the Sixth Plan period (1987-91) by supporting three principalroad-related Government objectives: (a) enhancing transport efficiency byupgrading the surface and alignment of existing roads and by improving roadmaintenance and operations; (b) expanding traffic capacity by widening roads withhigh transport demand; and (c) increasing traffic safety.

6. Project Descrintion. The project would have four components:(a) paving, upgrading and widening of about 270 km of the national road system;(b) establishment of a new road maintenance management system including periodicmaintenance of about 700 km of paved roads; (c) implementation of selectedaspects of the national road safety program including safety-conscious roaddesign of project facilities, physical improvement of known hazardous roadlocations and preparation of road safety guidelines; and (d) the provision ofequipment, consultants' services, and training for road sector development. Theselection of specific investments under component (a) would be made accordingto economic rate of return criteria. A breakdown of costs and the financing planare shown in Schedule A. Amounts and methods of procurement and of disbursements,and the disbursement schedule are shown in Schedule B. A timetable of key projectprocessing events and the status of Bank Group operations in the Republic ofKorea are given in Schedules C and D, respectively. A map is also attached. TheStaff Appraisal Report, No. 7556-KO dated April 12, 1989 is being distributedseparately.

7. Agreed Actions. During negotiations, the Government confirmed: (a)that the road maintenance management system would be carried out as agreed ; (b)that the road safety program would be carried out as agreed; and (c) the detailsof the training program.

8. Benefits. The main benefits obtained from the type of roadimprovements to be made under the proposed project are the substantial savingsin vehicle operating costs accruing to road users. The selected components haveERRs ranging from 12% to 54% with the weighted average being 27%. Both roadmaintenance and safety related activities are expected to produce even greaterbenefits than the road widening and upgrading components but they have not beensubjected to formal economic analysis.

3

9. Rika. The project poses no major risks. There is a possibilitythat unforseen difficulties with land acquisition could result in delays in thetimely implementation of the project. However, MOC's experienc should minimizedelays. A number of people will need to be resettled but previous experiencein Korea indicates that the assessment and payment of compensation to theaffected people is made in a fair and timely manner and delays are not expected.

10. Recommendation. I am satisfied that the proposed loan would complywith the Articles of Agreement of the Bank and recomend that the Executive

* Directors approve the proposed loan.

Barber B. ConablePresident

AttachmentsWashington, D.C.April 20, 1989

4

Estimated Coss az Iinna Plan

Estimated Co,s.:

Project Components l&oa Foreign 1gtal- * - - (US$ million) - - - -

Upgrading & widening 150.1 127.9 278.0Road Maintenance 35.2 30.0 65.2Equipment 1.0 4.0 5.0

Base Cost 186.3 161.9 348.2

ContingenciesPhysical 18.0 16.8 34.8Price 9.1 21.3 30.4

Right- of-way 99.7 0.0 99.7

Total Costa/ U= 200.0

Financing Plan:

Governmnt 313.1 313.1Bank . 200.0 200.0

Total Finance 313.1 ZALfl 2JLJ

a. Inclusive of taxes and duties amounting to about US$41.3 million.Prices as of October 1988.

5

|g^hadiuleB

-rogguement Methods and Disbursement.

Category of Expenditure MePrasur5et 4 thod TotalICB LCB Cost

- --- (US$M illion) - - - -

Procurgnt-

Civil WorksWidening and upgrading 296.4 35.0 331.4of national roads (141.6) (16.6) (158.0)

Road maintenance works 77.0 77.0(36.8) (36.8)

Equipment 5.0 5.0(5.0) (5.0)

Total1 296.4 117.0 413.4(141.6) (58.4) (200.0)

1. BaCh pzojaot e1t hi 1 pu" ie ts pb'.iof1 .Ca_ nts.L2. FIs ame the .apeotL -rn-ta £Sme be3. Total csoat xacludes lnd s.quteLton.

Distbursement

Category Amouvt 8 of Expenditures to be Financed(US$ m)

Civil Works 195.0 48% of tts total cost of civil works

Equipment 5.0 100% of foreign expenditures for directly importedequipment or 100% of the local expenditures (ex-factory) excluding identifiable taxes and duties,of locally manufactured equipment; 70% of localexpenditures for off-the-shelf purchases.

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7

ScbeduleC

KMA INHPRW MN PRpJECT

Timetable for Key Proiect Processlng kvents

(a) Time taken to prepare: One year.

(b) Preparod by: HOC

(c) First IBRD Mission: Jnuay 1988

(d) Appraisal Mission Departure: October 23, 1988

(e) Negotiations: March 21, 1989

(f) Planned Date of Effectiveness: September 1989

(g) List of relevant PCRs and PPARs: First Highway Project (Loan 769-KO),PPAR No. 3045 dated June 1980; SecondHlighway Project (Loan 956-K0), PPARNo. 3045 dated June 1980; Third HighwayProject (Loan 1203-K0), PPAR No. 5024dated April 1984; Fourth HighwayProject (Loan 1640-K0), PCR No. 5450dated February 1985.

A. of 7of b L o ID Cit

_ _V '

Loon or Amnt (8 m1illie)Credit Fical OM2 c(Iee Is.%leet

Vube eer serromwe RUpesWalA uIWIUwreed

Sevnty lost, and eight creit. folly disbursed 4,44.78 115.55

2m 1958 Repble of Kore Provincl enI.d County Roads 125.00 - 1.82267 1* Reubllc of Korm Cost end Cment Dlatribution 14.45 0.40two0 1104 Repblic of Korea Seond te upply 1. - 0.82J 1924 Republe of Korea J.nJu.l RionalD0lo_1 t 40.05 - 8.812892 1984 Re lic of Korea Hilhay Secor 217.12 - 2.062427 1984 Reble of Korea Educatioe Sector 100.00 - 11.022491 1m Repubtlc of Korea Watr Sply 05.00 - 6.182614 i5 Sl Urban Tresportation 2.70 - , 1.062511 185 SMIPC Sa*l I/Medium Indutry 20.8 - 0.202571 13 Rapublic of Korea 4"ond Industrlol Fl_m' 18.50 - 6.012w60 1380 Ropubilc of Kora Seoul-Buen Corridor 85.6 - - 12.092615 18 Repbllc of Korea Fourth Wator Supply' 85.74 4.06,207 10 KEC eond POWr 1.446 - 20.062704 18o -Ur,bC - rban Lan Devolopmet -10.00 - .2726 138 Republo of Korea Puon port 184.60 - 01.30nu0 too? 1S Fu ClN Woven' o t Pun 60.00 - 2.0428mg 1387 Repubic .1 Korea rrbl n Fl N e4t- 130.00 - 14.C42#0i 108M Republic of Kore Ii ReIona Trnsport 116.00 - 92.152008 190 Ta City Covern_mtm. Teu Urban Trsort .10.0 - '1.002s01 1089 Kore T ehology Corm': Third Ten$oty loon-t 6 00.0 - 14.91

Touta 6O847.8 115.6 417.81

Of which Na bew fapld 2,974.06 148.09

Tota Now Outata-die . .872.07 101 I.38

3ea: AmXount sold 181.31

Total NoK "eld b Sa ad IDA-prlor to exchange adjumeni) soul." -.

Total Undleboured 4iI7. - 417.18

Is The otte of the project Isted In Pert A ael describe In a _erate report on *al Sa/WA-ftiprojecte In execution, which Is updatd "lo, yesely and cIrcula tso te xotv Dlrcor on pel80 and Octobr 81.

..,6'- 'S8chedule P9 - Pa 2of I

-t 5 B. Statemnt of IFC In etmnts(As of March 31, 1989)

Fiscal . kout {8 illionjYear Obligor Types of Busine r IS quaty Eow6

1968 KLB (KDFC) Developemnt Finaneing - 0.7 0.71969 Honam Silk Co. Textiles .- 4 1 0.3-- 1.71970, Atlas Paper Pulp-and paper 4.5 0.5 5.0k1971 Korea Investment

I Finance Corp. Capital Market Development - 0.7 0.71974 KLB JKJLDFC) Development Fnancing - 0.4 0.41974 Korea Investment

.Finance Corp. Capital Market Development - 0.3 0.31975 Gold Star & Co. Ltd. Electronic Products 16.0 1.3 17.31975 Korea Securities .1975 Finance Corp. Capital Market bevelopment 5.0 0.6 -5.6197S Tong Yang Nylon

Company. Ltd. Synthetic Fibers 6.9 3.5 10.41975 Hae tia Dae Develop-

ment Company Ltd. Tourism 2.8 0.7 3.51976 Korea Investment

finance Corp. Capital Market Development - 0.4 0.41976184187 Chonju Paper Mfg. Co. Paper 5.0 1.0 . 6.0

1976186 Korea Zinc. Co. 4td. Zinc . 21.0 5.6 26.61976 KLB (KDFC) Development Finncin 17.8 - 17.81976 Gold Star & Co. Ltd. Electronic Products 10.0 0.4 10.41977 Gold Star.& Co. Ltd. Electronic Product8 - 0.2 0.21977 KLB (KD7C) Development Yikaning 0.3 0.31977 Korea Seiurities -

Finance Corp.-- Capital Matket - Q.5 0.51977 Korea Developmen

. Leasins Corp. v Capital Market 15.0 0.4 15.43978 RLB (KDFC) Development Financing - 1.1 1.11979 Gold Star & Co. Ltd. Electronic Products - 1.7 1.71979 KRIPC Capital market - 0.6 0.61979 Korea Development

Leasing Corp 0.5 51979 Gold Star & Ce.' Ltd. Electronic Products - 1.5 1.51980184 85187- Gold Star & Co, Ltd. Electronic Products 14:1 . 4.1

1980 Korea InvestmentFinance Corp. Capital Market 0.6 0.6

19801 Korea Securtltele82184 Finance Corp. 2-3 F - 4.3 .9

.1980 RLB (KDFC) Devlop_ t Ylmncing 4.9 4-91981. Taihan Bulk Terminal

Co. Ltd. Grain Port Terminal 7.0 2.5 -_1982/85 KIFC Capital Market - -71982 K-TAC (Korea Techno log Mre

Advanceme t Corp.) Research & elo. t- - 0.6 .0.6.1983/85 KDIC Money & C4=1 Mirket - 5.9 5.91984 Halle Cement Cemekt Const. Material 4.3 3.9 8.21985/86 Korea Fund =-- 4Ioney & Capital Market - 12.8 12.81987 Korea Buinees & Re-

-earch Information Money and Capital Market - 0.1 0.1- -188 ANAN General Manufacturing - 15.8 15.81989 Oriental Chemicals & Petrochemicals - 15.2 15.2

Total Gross Comuitments 116.7 105.6 222.3

Less cancellations terminationsrepayment and sales 111.3 p48.1 159.4

Total Commitments Novw Held by IFC 5.4 57.5 62.9

Total Undisbursed - 2.7 2.7

/a Cancelled at the request of the Company.

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